Elections and trade

Mid-term elections in the US have played out much as polls suggested they would with the Democrats getting a majority in the House of Representatives for the first time since 2011. But this change is unlikely to change US President Donald Trump’s outlook on trade policies even though the election win gives Democrats more oversight power over his actions. 

As predicted the Republicans managed to increase their hold over the Senate. The outcome also does little to bridge the deep divide seen in American politics, which have also filtered to other parts of the world, where seeking middle ground on governance and decision making has largely been set aside. President Trump now has to do something he has shown little interest in doing before, which is attempting to work across Party lines and build consensus on key issues. But the elections have also left the Republican Party more dependent on Trump than before.  

Many Republicans who lost their seats were moderates from suburban-heavy districts who tried to keep some distance from Trump and his rhetoric, but lost anyway. That leaves a shrunken core dominated by conservatives from rural areas whose constituents overwhelmingly support Trump.

In short, Trump will stay Trump. Although some Republicans may blame him for Tuesday’s losses, they are unlikely to be emboldened to rebel, especially given that the Party kept control of the Senate. Over the past two years, the President has shown little inclination to change his slash-and-burn style or turn conciliatory. He knows that he remains without question the most popular figure in his Party, international media reported. 

Now, Trump begins his run for re-election in earnest, where he will make every effort to galvanise his base of passionate supporters. That means that even in the face of stronger Democratic opposition, Trump is likely to advocate for his ‘America First’ agenda that prioritises hot-button issues, such as illegal immigration and trade protectionism. This, in turn, will accelerate his dramatic reshaping of a Party that for decades was defined by fiscal, social and national security conservatism.

The surviving Republican members in the House, too, will have little interest in cooperating with the new Democratic majority, leaving Republican congressional power focused in the Senate and the Government largely gridlocked. Since they must still work with a Republican-controlled Senate to pass any bills, the Democratic majority’s greatest influence will be oversight, the ability to call hearings and, if necessary, subpoena witnesses, as they lead committees like Foreign Affairs as well as Armed Services and Intelligence. This is the main fear but the oversight could result in more transparency as Democrats demand more information on relations with Russia, accountability regarding Saudi Arabia and a more balanced approach to trade deals.

Fears of a tariff war with China increasing could moderate as the US concentrates on legal action against specific Chinese companies that have been accused of intellectual property theft from US companies. But the US will also need China support on North Korea, which means Democrats will likely use their new found power with a soft touch. By the current look of things, it is unlikely that the dollar appreciation will moderate or interest rate hikes be deferred, which means that Sri Lanka’s economic exposure remains unchanged. External vulnerabilities have not abated for Sri Lanka.