What to Expect After the U.S. Midterm Elections?

November 7 2018

The results of the U.S. midterm elections are final. Yesterday, on November 6, American voters went to the ballot box to cast their votes for Congress. The Republican party kept a majority in the Senate (governors were elected in 46 states) but lost its majority power in the House of Representatives. What will the consequences be for Trump and the Republican party, now that the Democrats have gained some control over public policy?

November 6: Republicans Win Over Senate, Democrats Gain Edge in the House

Trump pulled every trick out of his sleeve to assure Republican majorities. A Republican majority in the House would allow Trump to pass legislation by merely winning over fellow party members. For instance, Trump’s tax cut would probably have collapsed if the House was controlled by a Democrat majority.

One of Trump’s tricks was to publicly announce that he had a “pleasant phone call” with Xi Jinping, the current Chinese president, last week. As a result, he allegedly gave the order to draw up a provisional draft of a new trade agreement between China and the US. This should have been a precursor to a peaceful and premature end to the prospect of a full-blown trade war.

Nobody should be fooled, however, because it is clear Trump was merely worried about the midterm elections. The first (negative) consequences are starting to be felt in the U.S. economy as import tariffs on Chinese goods are beginning to have ramifications on margins. Trump used the narrative of peaceful negotiations with the Chinese and an impending trade agreement to win over voters who might be worried about the impact of a trade war.

Democrats Did a Very Bad Job After Trump’s Election

I can still remember one experience I had very clearly. When I visited New York about six months ago, I frequently came across the following book on Trump: “The Dangerous Case of Donald Trump: “The Dangerous Case of Donald Trump: 27 Psychiatrists and Mental Health Experts Assess a President.” The “dangerous” Donald Trump was at its very least a complete narcissist, but most likely a psychopath. And therefore he should not be allowed to be president, according to these “mental health experts.”

It clearly shows the impact that Trump’s election had in the United States. Any president will probably show certain – for instance, narcissist - traits and Trump will not be an exception to any other president for that matter. But to label a president as completely insane and mentally ill is a step too far, even in the case of Trump.

In general, we should not overestimate the role of Trump – or any other president for that matter. Trump achieved a tax reform which – I assert -  will have little to no influence with regard to economic growth, but moreover increases significantly the fiscal deficit and, as a result, government debt (the federal deficit is rapidly marching toward a trillion dollars). In addition, Trump has reverted some of the recently introduced legislation, which were especially introduced as executive orders by Obama (Obama was unable to pass the legislation through Congress, which meant they could be as easily as overturned as Obama introduced them). Nonetheless, Trump has been unable to establish good trade relations with Russia and, moreover, has – despite the fact that any large consequences remain absent for the moment – international trade in his crosshair, which could mean a doom scenario for the global economy. A trade war is the last thing that the US economy (and the global economy) needs.

Nonetheless, the Democrats achieved a majority in the House of Representatives, which could mean that there will be some checks and balances with regard to the most negative scenario, a full-blown trade war. Some compromise does not seem as a bad idea, even though the Democrat majority in the House might put off any more significant tax reforms that could boost economic growth.

President Is a Mere Side Show in a Theater of Millions

But let us be honest: even Trump cannot prevent the US economy from falling into recession. That is the fate of a president. In four years’ time you can slightly alter the course of government, but the course is largely determined by the economic tide. Trump, in that sense, inherited a rather difficult economic from his predecessor, loaded with enormous debts and a tough economic outlook.

Elections of November 6 Are Important, But Not That Important

In his regard, yesterday’s elections are of relatively little importance. As the Democrats gained a majority in Congress, which was not what I personally would have expected, Trump is less able to:

  • Wage a full-blown trade war against, say, China
  • Introduce a tax reduction while government debt continues to increase at a staggering rate
  • Increase military spending and impose all types of sanctions to, say, countries such as Iran

Trump will have a tough two years in terms of pushing his own agenda, but this might give him some leverage in the next presidential election. If he is able to postpone rather miraculously an economic downturn, then he could use the economic momentum to win the next elections, especially as Democrats will increasingly make a fool out of themselves by radically and sometimes hysterically opposing anything that Trump does. In this sense, the real test for the Trump administration will come in two years’ time.

If you want to have a laugh in the meanwhile, be sure to watch the following compilation of commentators declaring “the beginning of the end” of Trump. Trump’s administration will almost certainly fulfill its four-year term, given the fact that yesterday the Republicans won a majority in the Senate.

Trump's "Tipping Point" and "Beginning of the End"?

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