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Bill Diviney, Senior Economist at ABN AMRO, suggests that their base case is that Democrats will take the House, with Republicans retaining the Senate in the elections on 6 November.

Key Quotes

“The polling is close enough that both a Democrat clean sweep and Republicans retaining the House and the Senate are plausible risk scenarios come election day.”

“A Democrat win would likely lead to a less combative trade policy, with a Republican win making it potentially more combative.”

“Congress has authority over trade policy, in that it must ratify any official agreements, for example NAFTA. But, when tariffs are imposed on the grounds of national security (as with the steel and aluminium tariffs), or in retaliation against intellectual property theft (as with the China tariffs), the president can act without the approval of Congress. So, the outcome of the midterms will not influence trade policy directly, in our view.”

“Rather, the effects would be more indirect. Ultimately, what will really determine the tolerance and appetite for a trade war is how the US economy responds to tariffs. If the tariffs continue to have no significant growth impact (as we expect), the political pressure against them will be less.”

“If, on the other hand, we start to see some significant hit to confidence, that would change the calculus. Meanwhile, a Republican win scenario makes a prolonged trade war more likely, as strong economic growth is likely to persist in that scenario (because we assume an additional round of fiscal stimulus). On the other hand, a Democrat clean sweep would (probably) loosen Trump’s grip on the Republican Party, and we are likely to see more pushback against his more unpopular policies – of which trade is arguably the biggest.”