The U.S. midterm elections have concluded, with Republicans losing their majorities in both the House and Senate. President Donald Trump’s second term will now enter a new phase of divided government, with the opposition controlling Congress. For countries that have endured tariff threats, policy reversals, and geopolitical shocks over the past two years, the results may appear to offer some relief. However, while voters can redistribute power in Washington, they cannot necessarily eliminate uncertainty from the global economy. The key issues after the election will be how the White House and Congress compete for control of the policy agenda and how that struggle affects financial markets and international negotiations.
Daniel Liu, Director of the Regional Development Study Center at the Chung-Hua Institution for Economic Research (CIER), stated that Trump must find ways to preserve his political influence as his remaining time in office shortens and resistance to his domestic agenda increases. Meanwhile, Democrats must balance stronger government oversight with voters’ expectations. Both sides need to demonstrate policy achievements, but neither may be willing to allow the other to share the credit. This could make it more difficult for the United States to forge stable and lasting policy consensus over the next two years.
Shift in Congressional Control May Not Ease Tariff Pressure
Even with greater constraints on his domestic agenda, Trump may continue using tariffs as leverage in international negotiations to press trading partners to expand investment in the United States, increase purchases of U.S. goods, or open their markets. Taiwan cannot assume that the congressional elections will ease tariff pressure. It must also monitor whether the White House accelerates its use of existing trade tools to secure negotiating gains.
Liu emphasized that stronger congressional checks do not mean that the executive branch’s tariff powers will immediately lapse. Existing statutory authority delegated to the executive branch will not automatically disappear when control of Congress changes hands. Section 232 measures addressing national security concerns and Section 301 measures targeting unfair trade practices may still be used if the applicable statutory conditions and procedural requirements are met. Taiwan should continue monitoring their scope and implementation.
Fiscal Battles Could Reshape Global Capital Flows
Global markets must first assess how political gridlock could permeate fiscal and financial systems. Liu explained that the change in congressional control will not resolve the United States’ ongoing deficit and debt challenges, nor will it automatically bridge the divide between the two parties regarding spending, taxation, and fiscal responsibility. Should budget negotiations be used as a tool for political leverage, government operations and fiscal policy may become increasingly unpredictable.
Financial markets may not react in a single direction. If investors become concerned about a breakdown in fiscal governance, they may demand greater risk compensation, pushing up Treasury yields. If political gridlock also weakens expectations for economic growth, demand for safe-haven assets could instead drive capital into Treasury securities. The principal risk is that markets repeatedly adjust their expectations in response to political developments, further amplifying volatility in interest rates, share prices, and the U.S. dollar.
Liu noted that even before export orders change, shifts in foreign capital flows and exchange-rate volatility could affect Taiwanese companies’ earnings and liquidity management. Companies whose revenue, capital expenditure, and borrowing are denominated in different currencies must pay particular attention to the combined effects of changing exchange rates and financing conditions. U.S. political risks affect more than export markets. They may also have a direct impact on corporate balance sheets.
If political negotiations postpone investment incentives or public infrastructure spending, the payback periods initially projected by companies may be extended. Therefore, assessments of the post-election U.S. economy should consider not only the policies proposed by the White House, but also the availability of fiscal resources and the timeliness of policy implementation.
Short-Term Gains in U.S.-China Negotiations Unlikely to Resolve Long-Term Tensions
U.S.-China relations may oscillate between assertive pressure and transactional negotiations. Liu indicated that President Trump could intensify pressure on mainland China to reinforce his political base. He may also seek agreements that yield visible outcomes, leveraging commitments on procurement, investment, or market access to demonstrate his ongoing influence over the international agenda. While electoral setbacks may not dictate the direction of his policies, they could incentivize the White House to pursue concrete short-term achievements.
However, outcomes that are politically advantageous may not suffice to address the underlying structural tensions between the two countries. Procurement commitments could boost orders for specific industries but are unlikely to resolve the ongoing technology competition. Limited market liberalization may enhance the negotiating environment without alleviating concerns regarding supply chain dependencies. Even if an agreement is announced, its implementation scope, compliance standards, and dispute resolution mechanisms could serve as the basis for future disagreements.
With Democratic control of Congress, legislators may increase scrutiny of any agreement and require the White House to justify whether excessive concessions were made for short-term gains. Consequently, U.S.-China negotiations will encounter pressure from both external negotiations and domestic oversight. Internationally, the administration must obtain China’s acceptance of its terms, while domestically, it must address congressional examination. Achieving an agreement and ensuring its sustained implementation will represent two separate challenges.
For businesses, improvements in U.S.-China relations will not yield uniform benefits across all industries. Changes in procurement may alter orders for current suppliers, while the relaxation of certain restrictions could modify competitive dynamics. Industries not included in an agreement may continue to experience pressure. Evaluating the outcomes of U.S.-China negotiations will require detailed analysis of which products receive preferential treatment, which competitors benefit, and whether existing customers adjust their procurement strategies.
Taiwan Must Identify Policy Gaps and Preserve Flexibility for Adjustments
As political power shifts in Washington, Taiwan must enhance its capacity to interpret policy signals. Statements from the White House, congressional proposals, administrative announcements, and formally enacted measures each correspond to distinct stages in the policymaking process. Interpreting political rhetoric as settled policy could lead to premature changes in strategy. Waiting until measures are fully implemented, however, could leave insufficient time to prepare.
Government support for industry should prioritize clarifying the status, scope, and effective conditions of relevant policies. Assistance should enable companies to differentiate between finalized measures, those under negotiation, and conditions subject to change. When the executive and legislative branches present divergent positions, the government should specify which regulations are applicable to businesses, thereby reducing decision-making costs arising from conflicting information.
Companies should reevaluate the policy assumptions underlying significant investments. The viability of original plans should be assessed in scenarios where subsidies are delayed, tariff treatment changes, or customer demand does not meet expectations. Uncommitted capital could be allocated incrementally based on confirmed orders, policy developments, and infrastructure progress to maintain flexibility. As political uncertainty increases, distinguishing between deferrable expenditures and irreversible commitments becomes increasingly important.
Assessments of the security environment should not fluctuate in response to every economic or trade development. A U.S.-China procurement agreement does not constitute sufficient evidence that risks in the Taiwan Strait have diminished, nor does a breakdown in negotiations necessarily signal an escalating crisis. Military activity, official policies, and crisis communication mechanisms should be evaluated independently for substantive changes before considering their combined effects. This approach prevents each negotiating development from being misinterpreted as a pivotal shift in the security environment.
Liu observed that Republican losses in the midterm elections could restrict certain Trump administration policies, but may also motivate the White House to expedite implementation and place greater emphasis on short-term results. Rather than experiencing a broad easing of pressure, the world may face a more complicated process of policy formulation and execution.
For Taiwan, the primary post-election priorities are to analyze how shifts in Washington’s balance of power will influence policy timelines, how U.S.-China negotiations will redistribute benefits across industries, and how financial volatility will affect investment costs. By clarifying the practical effects of these changes, Taiwan can turn political signals into a basis for decision-making and carefully assess what the election results mean for the economy and security.
Author: CIER Editorial Team
Date: November 5, 2026