Democratic victories in both chambers of Congress will create a legislative standoff with President Donald Trump, but are unlikely to bring Europe relief on trade, economists said. They expect limits on some parts of Trump’s agenda rather than a fundamental change in US economic policy.
Moritz Schularick, president of the Kiel Institute for the World Economy, described the outcome as a win for American democracy and the rule of law, saying it showed that checks and balances were working. He called it “the beginning of the end of Trump and his policies.”
Ifo Institute president Clemens Fuest said Trump could veto Democratic bills, while Democrats lack the two-thirds majority needed to override a veto. As a result, he does not expect further deregulation or tax cuts sought by Republicans, but also sees no shift toward higher taxes or expanded social benefits.
Europe should not expect easier trade with the United States, Fuest said. Trump retains executive powers over economic policy and could face pressure to reduce tariffs as the costs of protectionism for US consumers draw more attention. But with less room to act on domestic policy, he could also rely more heavily on tariffs, Fuest said.
Schularick expects Trump’s room for manoeuvre on trade and China to shrink, but does not anticipate a radical reversal. Fuest said Democrats are more supportive of international cooperation, while noting that many in the party also see trade barriers and subsidies as tools to reduce economic dependencies. Achim Wambach, president of the ZEW economic research institute, cautioned against expecting a fundamental US return to free trade under a Democratic majority.
Fuest said both parties broadly regard China as a strategic and economic rival whose influence should be limited. He expects Democrats to put greater emphasis on working with European and Asian allies, though it remains unclear whether they can persuade Trump to take that approach.
The economists also consider a decisive effort to reduce the US budget deficit unlikely. Fuest noted that the Biden administration and Democrats had also substantially increased government borrowing. Schularick said the deficit could rise if some Democratic spending plans win support.
Holger Schmieding, chief economist at Berenberg Bank, said political deadlock in Washington would rule out further fiscal stimulus. He forecast that, alongside slower investment in artificial intelligence and a tougher approach to migration, US economic growth would weaken toward 1.5% by 2028. Schmieding also said he expected Trump to reach an agreement with Iran, directly or indirectly, by early 2027 to reopen the Strait of Hormuz, as pressure grows over high prices and oil costs.
Sources: FAZ.