Perhaps the biggest surprise in the midterm elections was that, unlike 2016, there wasn’t one. Polls and pundits expected Democrats would take control of the House and Republicans would keep the Senate, and that’s exactly what we are getting.
The likely result: two years of congressional gridlock on economic policy, which requires both houses of Congress to agree on the same legislation. So, we can expect that the status quo on economic policy will mostly prevail.
There are, however, two economic issues on which the election outcome will make a meaningful difference: trade and infrastructure.
One of the first items of business in January after the new Congress gets sworn in will be the United States-Mexico-Canada Trade Agreement.
The deal is intended to replace NAFTA, which President Donald Trump has threatened to withdraw from for several years. In reality, the new deal is little more than a slightly modified version of its would-be predecessor.
But before it can become the law of the land, Congress must ratify it, either by a majority vote by both houses or two-thirds of the Senate.
The USMCA’s chances were already far from assured before the Democrats took the House. Now its failure is very likely.
So what happens next?
The simple answer is not much. NAFTA remains in force. Ultimately I believe that’s a good thing for the U.S. economy because the new deal would likely shift auto industry jobs to Mexico.