Global markets reacted broadly positively to extensive Democrat gains in the 3 November United States midterm <a href="https://absafricatv.com/south-africans-to-vote-in-key-local-elections-seen-as-a-tough-test-for-ruling-anc/” title=”South Africans to vote in key local elections seen as a tough test for ruling ANC”>elections. Markets are betting that President Donald Trump will find it harder to rule impulsively, with even his own Republican Party likely exercising more checks and balanceson the president’s whims. After two years of tariffs, pressure on the independence of the Federal Reserve and an energy shock, this is good news for the world economy. Yet, not everybody wins.
In particular, China and Russia could find their dealings with President Trump much more constrained. The main impact will be on energy prices. Pump prices in the US in the context of the war in Iran had a major influence on midterm voters. A Democrat-majority Congress cannot end a war on its own, but from January it will control new funding, oversight hearings and the legislative calendar, potentially constraining further escalation over Iran. A negotiated exit from the conflict has become more likely. Energy importers, including Europe, will benefit from a reduced oil risk premium.
On trade, a Democrat-majority Congress is unlikely to repeal presidential tariff authority, and current sectoral and national-security duties (put in place by the Trump administration after the so-called ‘Liberation Day’ tariffs were ruled illegal) will stay. But the probability of new shocks will be less. Congressional hearings on price impacts, refusals to extend temporary measures and pressure for exemptions will make tariffs by presidential announcement much harder. European exporters may not see lower average US tariffs, but they should see less of the uncertainty that has held back investment and distorted trade flows.
The third impact of the midterm results is the least visible but probably the most important. Kevin Warsh was confirmed as Federal Reserve chairin May without Democrat support as Democrats remained wary of a White House that has made no secret of wanting lower rates. With the Senate now in Democrat hands, it will be more difficult for Trump to fill the Fed board with loyalists, or to remove sitting governors. That should help anchor US inflation expectations and the term premium on Treasuries. The dollar remains the backbone of global finance and a credible Fed is therefore a global public good, not a domestic US matter.
On geopolitics, Trump’s approach to China has shown clear signs of a rapprochement, with four summits in 2026. US allies, especially Japan and increasingly Europe, have been sidelined. Meanwhile, Trump has cosied up with Putin to the detriment of Ukraine and Europe, which also came under pressure over Greenland. A Pentagon review of US forces in Europe is due in December, which may bring cuts to US troops stationed there.
A Democrat Congress will not rewrite foreign policy, which will remain largely in Trump’s hands. However, it can influence Trump through the Foreign Affairsand Armed ServicesCommittees. This will be particularly important for the package of arms sales to Taiwan that stalled in early 2026after Trump spoke to Chinese President Xi Jinping. Given the importance of Taiwan for China, uncertainty may be introduced into the US-China détente.
The same applies to Russia. The Kremlin has been quick to play down the midterm result, insisting that Trump remains in office and that his peace efforts will continue. But Democrats have consistently backed stronger support for Ukraineand more pressure on Moscow. Democrat control of Congress, giving powers over US sanctions, will make it much harder for the White House to accept a settlement on Russia’s terms. For Europe, which is shouldering a growing share of Kyiv’s financing, this is clearly welcome.
The foreign-policy risks, in particular for Europe, should not be underestimated, however. Kept in check at home, President Trump has every incentive to turn to foreign policy, where his powers are least constrained. The two months before the new Congress is sworn in, in early January, are a window for escalation, in Iran or elsewhere. European officials would be right to doubt that unpredictability will disappear from the relationship with the US. If the new Congress is more focused on oversight than on dealmaking, US-China relations may be left to drift, rather than stabilising.
The deeper lesson of the US midterms is that US institutions still bind its president, though not fully. The test now is whether a president blocked at home will look for wins abroad. China remains the most obvious place to find them. Trump has said he will attend the Asia-Pacific Economic Cooperation (APEC) summit in Shenzhen, China, on 18-19 November, and could meet Putin and Xithere. It could provide the first post-midterm indication of the US’s foreign-policy direction.
Authors
Alicia García-Herrero
Theme
Global economy and trade
Keyword
geopoliticstrade policyglobal governancetransatlantic relations
Country
United States
Language
English
