What Does the Blue Wave Mean for U.S. Trade Policy?

A blue wave came crashing down on the Trump administration last night. Now for the fun part: Arguing about what it meant! Why exactly did American voters turn on the Republicans? We are all aware of the various objections to things Trump or his administration have said or done, and it could be any or all of those. And the normal voter rejection of the party in power in a midterm year perhaps played a role too. There are plenty of possibilities for people to choose from that will confirm their priors!

Turning to the subject matter of this blog, let's talk about the impact of the election on U.S. trade policy. Tariffs and trade policy were clearly an element that played a role in last night's result. What impact will Democratic control of Congress have on the administration's trade policy going forward?

The short answer, in my view, is: Probably not much. Given how the administration has relied on (its view of) executive power, things aren't likely to change significantly in the short term. However, I do think some Congressional Democrats will try to push back a bit, raising concerns more aggressively and introducing some legislation.

Raising concerns could involve greater Congressional scrutiny – as part of hearings and investigations – of various issues, including: The legal basis for the Agreements on Reciprocal Trade (ARTs); the specifics of the trade and non-trade concessions and commitments that were made and received in these ARTs; the process of implementation of the tariffs, along with any exemptions that were handed out; the harm to certain U.S. industries from the tariffs; and the impact of Trump's trade policies on U.S. exports of various goods and services. This could mean that House Ways and Means/Senate Finance Committee hearings with administration trade officials will be more contentious than they have been up to now.

As to trade legislation, introducing it is easy, but passing it will be difficult, and then avoiding (or overriding) a veto will be nearly impossible. Nevertheless, legislation can still be used for messaging purposes, so we could see some activity here.

One key issue here might be, who exactly are the new members of Congress and what are their views on trade policy? I'm not going to do it here, but it's worth going through the list of people entering and leaving Congress to see if anything can be gleaned from the changes in its composition. Before Trump came on the scene, Democrats were the more protectionist of the two parties. Where exactly do Democratic politicians stand now, on tariffs in general and on Trump's use of tariffs in particular?

It's also worth noting that while trade policy will certainly be on the radar of many of the folks in the new Congress, I'm not sure how high it will be on the agenda. There's a lot to deal with, and trade policy may not be the priority.

Regardless of what the new Congress thinks, though, it is clear that the Trump administration believes in their approach to trade policy and will keep going with it. They may have delayed a few actions, such as the Section 301 "excess capacity" tariffs, to try to avoid hurting Republicans during the midterms, but now they are likely to get back to using tariffs aggressively in pursuit of their goals of reshoring manufacturing, raising revenue, and pressuring trading partners on various things. So get ready for that! (At the same time, I suppose it's possible we might get a renewal of USMCA, and I've seen some talk of progress between the U.S. and Canada in recent days. I'm somewhat skeptical, but we'll see).

With all this in mind, what should pro-trade folks who are looking for a new direction be keeping an eye on in the coming months and years?

First of all, a group of relatively trade-friendly Congressional Democrats are likely to kick around various ideas behind the scenes, and gauge support among fellow Democrats and pro-trade Republicans. Even if nothing concrete can be accomplished in the new Congress, this will constitute useful planning for action that can be taken during a future administration.

Second, at some point in 2027, we will start to see Democratic presidential candidates emerge. As they weigh in on trade policy, we will hear different possible visions for U.S. trade policy under a future Democratic president. Some candidates will probably argue for a continuation of the Biden approach; others will want to double-down on protectionism, going further than Biden and trying for Trump-style protectionism but without all the chaos and over-the-top rhetoric; some will take a more strongly anti-tariff view, and could look for a way forward on open trade while avoiding the mistakes of the pre-Trump era; and some may move away from all the usual options toward something new and unconventional (here I'm thinking of someone like AOC).

And then on the Republican side, the battles over the future of the Republican party could get pretty intense. The free market wing will try to reassert itself, perhaps pointing to the election outcome as evidence that Trump's economic policies don't work politically; at the same time, multiple people will be fighting for Trump's endorsement, and will push for a continuation of his approach in some form. It's very hard to say what comes out of all that. My guess is that it will take another election cycle for the Republicans to sort all this out.

Summing up, while this election may not make much of a difference in U.S. trade policy in the short-run, it is perhaps the opening bell in a long fight over the future of that policy.