Results are coming in, but the Democrats clearly won a wave election. My instinct is that this will matter for American domestic political goings on, but on the economic policy front, we will see gridlock. This is arguably positive — by preventing the White House from doing incredibly stupid things, some risk scenarios are avoided. As a result, it may be safe to project current trajectories to go forward.
Canadian Tariffs. Before the election, there was talk of movement on the Canadian trade front. I did not take this seriously, as it appeared that the White House figured out that the trade disputes were hitting battleground northern border states. I can see a deal to eliminate the worst tariffs happening, but so long as Trump is in the White House, there is no point in going beyond that. A real trade renegotiation will require a counter-party that is seen as reliable. The provincial boycotts of American liquor may be hard to unwind, as there are domestic constituencies that benefit from them, and there is more goodwill towards Europe and Southern hemisphere countries that replaced American booze on limited provincial liquor commission shelf inches.
Iran War. The President appears to be in a low energy state dealing with the drubbing. The possibility remains that he could lash out in the lame duck session of Congress. However, my bias is to expect the conflict to freeze, and the status quo will remain. It appears to be an exaggeration to say that the Persian Gulf has become a Persian Lake, but “freedom of navigation” through the Strait of Hormuz is likely to have caveats that benefit Iran. This would allow energy flows to resume, but until there is some sign that the Americans and Israelis accept the situation, taking the passage will likely be viewed as risky (and thus expensive).
Data Centres. Data centres are less popular than the President, and Republicans have discovered that they do not have the margin for error to allow for angering their rural base. I think the arguments over data centres will mainly occur at the sub-national level, but the Republicans got a kicking at the state level as well. Data centres are a major driver of fixed capital expenditure currently, so if animal spirits cool there, the growth drivers for the economy get even slimmer.
U.S. Fiscal Policy. Although the composition might change somewhat, whatever budget trajectory was baked in is likely to remain due to the threat of Presidential vetoes.
Ukraine/Russia. It is likely that the White House will be forced to be less explicitly pro-Kremlin, but whether that translates to American military aid resuming remains to be seen.
NATO Military Procurement. Although there is a strand of thinking that NATO allies should come running back to the American’s side after the election, it is unlikely that the moves for the other ally members to have closer procurement ties would stop completely. In any event, the moves are happening at a glacial pace.
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