People react to election results during a Democratic party election night event at the Hyatt Regency Hotel, on Tuesday, Nov. 6, 2018, in Washington. - AP
THE Democratic Party’s success in capturing the House of Representatives is expected to complicate President Trump’s push to negotiate new trade deals and cut regulation for industries such as autos and energy, policy analysts and market strategists say.
“You’re not going to see any further major legislative changes. There’s not going to be another tax cut and no major policy revisions for business,” said Terry Haines, senior political strategist at brokerage Evercore ISI. “But at the same time, nothing passed under Trump gets rolled back.”
The GOP will also face new hurdles on tax-cutting initiatives set in motion last year that have boosted business profits and helped to lift consumer confidence. House Democrats are likely to push for tax increases—including possibly raising the corporate tax rate as part of a budget deal—and block Republican efforts to make permanent new individual income tax cuts passed last year, economists and policy analysts say.
“Some industries could be on the defensive with certain provisions of the tax code,” said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “A Democratic House [will] go after things they don’t like in the tax code as a means of paying for programs they do.”
The House Democrats won’t be able to roll back any signature legislation passed by the Republican Congress without a majority in the Senate. But policy analysts say they may push through some tax changes in return for their support on other bills or trade deals.
One of the most pressing policy issues affecting business is a new trade deal struck by the Trump administration in October with Canada and Mexico to replace the 24-year-old North American Free Trade Agreement.
The new pact, called the U.S.-Mexico-Canada Agreement, protects tariff-free trade for the auto industry in the region—a win for major car companies—but adds new restrictions, requiring a greater portion of the car to be built in North America and with higher-wage workers to avoid duties. For the farm sector, it removes trade barriers on a range of U.S. exports, such as poultry, grains and dairy, benefiting agricultural producers.
Congress must ratify the agreement for it to become law, and that is unlikely to take place until a newly elected House is seated early next year. House Democrats could throw up new roadblocks to the trade deal, pushing for provisions more favorable to labor unions, such as better wage protection for U.S. workers, political analysts say.
Any delay in its passage would create new uncertainty for companies looking for clarity to move forward with investment decisions. It also could hinder Mr. Trump’s efforts to negotiate new trade deals with China and other trading partners, prolonging ongoing disputes over U.S. tariffs on aluminum, steel and Chinese-made goods.
“We expect ratification, but the politics in that may be a bit uncomfortable for all involved,” said Stephen Gallagher, chief U.S. economist at brokerage firm Société Générale.
House Democrats are also likely to take aim at Mr. Trump’s deregulation drive, using their oversight power on committees to challenge those efforts, according to Wall Street strategists.
Environmental and industry trade groups say oil-and-gas companies, along with coal producers, have been among the biggest winners so far in the administration’s push to ease mandates on reducing greenhouse gases. Those interest groups also say the auto industry stands to benefit from an attempt to curb future fuel-economy requirements on cars and trucks.
However, strategists say Democrats controlling the House could use committee chairmanships to launch investigations, initiate exhaustive document requests and require company executives to testify, moves that could stall the administration’s attempts to roll back regulations.
“Pretty much any regulated industry can look forward to a lot of oversight hearings,” said Evercore’s Mr. Haines.
Ramzi Hermiz, chief executive of Shiloh Industries Inc., an auto-parts supplier based in Ohio, said he expects House Democrats to play a more active role in pressing the Trump administration to maintain stricter regulations on vehicle fuel economy. “That means more direct [auto] industry oversight,” said Mr. Hermiz, who added that he would be “surprised” if Democratic lawmakers didn’t support the proposed re-write of Nafta. “I’d be disappointed if they don’t see the benefits,” he added.
Another near-term item on Congress’s to-do list is a farm bill, covering everything from crop insurance to food-stamp funding. Lawmakers have yet to resolve differences in the House and Senate versions. Some farm-sector lobbyists worry that a House led by Democrats could call for changes to the $867 billion legislative package, further delaying it and creating uncertainty for farmers trying to plan for next spring.
On Wednesday, wheat farmers called on Republicans in Congress to fast-track its passage during the lame duck session.
“While the 2018 midterm elections brought change to the political makeup of Congress, this should not impact the priority of passing the 2018 farm bill,” said Jimmie Musick, an Oklahoma farmer and president of the National Association of Wheat Growers.
Democratic lawmakers also have called for increasing the corporate tax rate to 25%, up from 21% now, and although they don’t have enough votes to pass new legislation, they could press for it as part of broader budget talks.They’ll also likely look to raise taxes on hedge funds and private-equity firms, and try to reshape international tax rules for firms with profits and operations abroad, policy analysts say.
In addition, drug prices are likely to remain an issue for lawmakers and continue to lead to criticism of drug companies. Democrats can draw more attention to drug prices by launching investigations into egregious cases and requesting company executives to testify.
They also could seek legislation tackling high drug prices by creating a job in the government aimed at limiting price increases or by pushing for Medicare to have the authority to negotiate directly with drugmakers, which the agency can’t do now. Those proposals could prove palatable to President Trump, whose criticisms of pharmaceutical prices have faced pushback from some members of his party.
Efforts by Republicans in Congress to repeal the Affordable Care Act are expected to fizzle without control of both chambers of Congress, which may provide more stability for health-care providers, though legal challenges to the law remain. Democrats have said they would push back against Republican efforts to expand sales of health plans that don’t meet the health care law’s requirements.
Some analysts say Mr. Trump could work to forge a compromise with House Democrats on boosting spending for infrastructure improvements to roads and power grids, which Citigroup estimates would add about 0.2 percentage points to real economic growth in 2020. - WSJ
To gain full access to The Wall Street Journal online, subscribe to StarBiz Premium Plus.
Limited time offer:
Just RM5 per month.
