The Republicans managed to avoid the worst-case scenario in the US midterm elections on Tuesday, outperforming many polls in Senate and gubernatorial races and picking up three seats in the upper chamber in the process. But the Democrats’ win in the House of Representatives will still put a leash on the president, and that might translate into pressure for Donald Trump to drop the trade war.
That is the opinion of JPMorgan strategist Marko Kolanovic, who wrote in a note on Wednesday that the “anti-business” agenda that emerged during Trump’s second year in office was not supported by a red wave that could have helped the Republicans maintain control of the House.
That means that Trump has few choices to help keep the economy churning, except for backing down from a trade war that is weighing on the economy.
“As the president cannot count on Congress or the Fed for more easing, he will need to do what is in his power to keep the economy rolling – drop the damaging trade war and turn it into a winning deal,” Kolanovic wrote, per Bloomberg.
An e-mail from JPMorgan on Friday also noted that, despite avoiding a massive blue wave that had a small chance of handing the Democrats a majority in the Senate, the Republican’s showing in the election was actually worse than any in the last 100 years, adjusted for economic conditions.
The Atlantic’s Derek Thompson explained a striking chart from the investment bank, via Twitter:
2. What exactly does that mean? Here's the graph from JPM. Kinda confusing at first glance but,
– Y axis is labor market strength
– X axis is equity/home value growth
– bigger bubbles-> bigger midterm losses
So, you should expect to see bigger bubbles at the bottom. pic.twitter.com/AxkCSbY4Of
— Derek Thompson (@DKThomp) November 7, 2018
The question Trump may be asking himself in the aftermath of the election and in anticipation of further interest-rate increases: “if I lost that many House seats with a strong economy, what will happen in 2020 if the economy tanks?”
With a zero percent chance the Democrats in the House will want to hand him legislative wins to shore up the economy, a deal with China may be his only option.