What the Democrats' midterms win means for the US economy and Trump

The stunning Democratic victory in the US midterm elections has sparked speculation about the potential impact on the US economy and President Donald Trump's agenda. While initial market reactions have been muted and slightly negative, the reality is that the Democrats still lack a filibuster-proof majority in the Senate and President Trump has veto power, leading to widespread agreement that the next two years will be characterized by gridlock in Washington.

Jacob Funk Kirkegaard, a senior fellow at Bruegel and the Peterson Institute for International Economics, suggested that the Democrats' win does not significantly alter the near-term policy outlook. He noted that without a filibuster-proof majority in the Senate, nothing will get done. Some investors are concerned that the Democrats could force through AI regulation, particularly if they secure the White House in 2028.

However, Kirkegaard believes local opposition to data centers, which are crucial for AI development, will make it harder for big tech firms to build new facilities, potentially impacting their valuations.

Stephen Brown, chief North America economist at Capital Economics, emphasized that the Democrats' control of both houses of Congress and Trump's remaining term in office could lead to gridlock. He also pointed out that if the Democrats win the presidency in 2028, they could introduce tax hikes on corporations and high-income individuals, as well as regulations that may delay the AI rollout.

Despite the Democrats' strong performance, particularly in states affected by Trump's tariff policies, it remains unclear how they could force substantial changes to Trump's economic policies. President Trump has consistently supported tariffs since his political rise, and while Congress can take legal action against existing tariffs, it is unlikely to bring about a significant shift in his approach.

The Democrats' electoral victory has also reignited discussions about corruption allegations against the Trump administration. If the new Democratic-controlled Congress launches legal investigations into Trump's alleged corruption and personal enrichment, it could lead to impeachment proceedings, potentially forcing the president to negotiate on some economic issues to secure his political survival.