Trump is still in charge, but Democrats gain leverage in coming economic debate

Donald Trump retains executive authority, but Democrats now wield significant leverage in the upcoming economic discussions following Tuesday's midterm elections. While Congress cannot directly control tariffs, immigration enforcement, or the agencies that have rolled back environmental and health rules, they can influence the nation's fiscal capabilities through borrowing and spending.

The Democratic majority in the House and Senate gives them the capacity to threaten a government shutdown and withhold debt ceiling increases unless concessions are granted on issues such as restoring health insurance tax subsidies, originally enacted under Trump's administration.

In a statement on Wednesday, incoming Senate Finance Committee Chair Ron Wyden expressed his committee's intent to pursue a tax agenda focused on the ultra-wealthy and corporations, review healthcare reforms, and strengthen congressional oversight of trade policy. Meanwhile, the United States economy is performing well, with a 4.2% unemployment rate and a strong third-quarter growth rate of 3.4%.

However, inflation remains above the Federal Reserve's 2% target, driven by factors like Trump's tariffs and the Iran conflict, as well as AI-driven economic expansion. Controlling inflation may necessitate curbing this growth, potentially reducing borrowing costs for businesses competing for credit against top AI firms.

Democrats will use their newfound power to investigate deregulation's impact on business costs and to scrutinize trade and healthcare policies that have affected growth. They also hold the authority to shape tax and spending legislation directly impacting Trump's governance. Budget legislation can now be crafted to limit agencies' operations, addressing issues such as immigration enforcement, environmental regulations, and military officer dismissals.

Although Trump has veto power, a government shutdown could force negotiations, potentially leading to policy compromises on Medicaid and various subsidies. While divided government often leads to policy stagnation, history shows that midterms can catalyze fiscal shifts, as seen during President Bill Clinton's and Barack Obama's presidencies.