Goldman Sachs looks ahead to the US midterm elections: the Democratic Party is likely to win the House of Representatives, and finance, tariffs, and AI regulations become a game point

The Zhitong Finance App learned that Goldman Sachs released a US economic analysis report on November 1, stating that the core focus of the November 3 midterm elections is: the prediction market shows that the probability of the Democratic Party winning a majority of seats in the House of Representatives exceeds 90%, and there are still variables in the Senate; if the Democratic Party takes the House of Representatives, fiscal deadlines such as the expiration of the spending authorization on December 11 and the 2027 debt ceiling will become the main legislative game points. At the same time, the report suggests that the probability of major fiscal policy changes in the next two years is low, but spending may increase slightly under the Democratic Party winning the election; in terms of tariffs, the Democratic Party cut some tariffs to a limited extent, which is not expected to be enough to offset the impact of Trump's imposition of new tariffs after the midterm elections. The overall US tariff level may still rise; data center issues may cool down after the election, and AI regulations and state-level restrictions are still worth paying attention to.

1. The Democratic Party has a high chance of winning in the House of Representatives, and the Senate is more variable

According to the report, polls and primary election votes show that since the 2024 general election, public opinion tendencies across the US have fluctuated by about 10 to 11 percentage points towards the Democratic Party. In the US general vote polls, the Democratic Party is currently about 9 percentage points ahead; in 2024, the Republican Party won the general vote in the House of Representatives with 2.6 percentage points, which means a fluctuation of more than 11 percentage points. The voter enthusiasm index and primary election participation rate also point to a similar degree of dominance for the Democratic Party.

In the House of Representatives, the Democratic Party only needs a net increase of 3 seats to gain a majority. The forecast market currently suggests that the Democratic Party is expected to have a net increase of 21 seats. The total number of seats next year will reach 236, which is similar to the majority size of the Democratic Party after the 2018 election, and will also broaden the weak advantage of the ruling party slightly above 220 seats since 2021.

The Senate election is even closer. According to the report, the Democratic Party is leading among some seats held by the Republican Party, but most are within the margin of error; among the seats that the Democratic Party needs to defend, its candidates also lead the polls, but two of them are within the margin of error. According to the report, if the Democratic Party wins the House of Representatives, the importance of the Senate results is relatively low because the Senate usually requires bipartisan support to pass legislation, and President Trump can still veto the bill submitted by Congress.

2. The fiscal deadline is the focus, and spending may increase slightly

According to the report, in the scenario where the Democratic Party wins the House of Representatives, the fiscal deadline will be the main focus of legislative action. The spending authorization needs to be extended, and the debt ceiling needs to be raised, which could force both parties to compromise. The Democratic Party is likely to focus on these deadlines to push agendas such as the war on Iran, tariff cuts, reversal of spending cuts, and expansion of health benefits. However, Goldman Sachs doesn't think Congress will handle these deadlines before the end of the year, even though the Republican Party may try.

Specifically, the next relevant deadline is December 11, when the spending authorization expires. The report said that due to policy differences and the gap in proposed spending levels between the two sides, Congress is more likely to postpone the deadline until February or March 2027. The debt ceiling may be hit in the first quarter of 2027. The US Treasury is expected to cope by draining its balance at the Federal Reserve and using unconventional measures, but Congress may need to raise the debt ceiling by October 2027.

According to the report, the Democratic Party may use mandatory events such as the risk of a government shutdown or a debt ceiling to seek policy concessions. Jeffries, who may become the Speaker of the House of Representatives, has stated that it is expected to quickly push for the expansion of health insurance subsidies, the reduction of some tariffs, and a vote against Iran's war. House Democrats also set up a working group this year on the issue of affordability of living, covering food, energy costs, housing, health care, etc., which may be the central theme for next year.

In terms of the impact of fiscal policy, Goldman Sachs does not think there will be major changes in the next two years, but spending may increase slightly in the event that the Democratic Party wins the election. The Democratic Party's proposal to reverse spending cuts in last year's fiscal plan is expected to increase spending by about 0.25% of GDP in 2027. Should an agreement be reached on discretionary spending and/or expansion of health insurance benefits, there may be a slight increase on this basis.

3. Tariffs: Partial cuts are difficult to withstand new increases

According to the report, Democratic Party leaders said they would try to reverse some of the Trump administration's tariffs if they win a majority. Provisions to reduce tariffs on specific countries or products may be negotiated at the fiscal cutoff date, or may even be passed as an independent measure. The most likely focus is to reduce tariffs on imports from Canada.

However, the report predicts that after the midterm elections, Trump will announce the results of the 301 investigation into industrial overcapacity, and that comprehensive measures will restore tariffs from individual trading partners to the approximate level before the Supreme Court ruling. The report predicts that the impact of the new tariff increases announced by Trump after the midterm elections will exceed the Democratic Party's partial cuts, and may cause the net increase in the US effective tariff rate to slightly less than 2 percentage points.

4. Data center issues are expected to cool down, and AI regulation is receiving attention

According to the report, the data center has been the subject of some campaigns this year, but attention is expected to decline after the election, as it ranks low among voters' priorities. Congress may limit tax benefits for data centers, but regardless of the election results, a nationwide suspension of data center construction seems unlikely. The report predicts that Congress will shift its focus to AI regulation and may reach a compromise plan that includes basic federal regulation and self-testing, but strict restrictive regulations are unlikely to be introduced.

At the state level, further action is still possible at the state and local levels after the midterm elections. Some Democratic gubernatorial candidates proposed stricter restrictions than their Republican opponents, including statewide suspensions, environmental legislation, and restrictions on tax benefits. A potential full Democratic administration in Arizona, Pennsylvania, and Nevada could push for new AI-related laws and bring more AI regulations that mimic existing rules in California and New York.

At the federal level, the report argues that the Democratic Party's victory in one or both houses is unlikely to result in comprehensive new regulation, and any legislation would require bipartisan support. The bipartisan AI agreement may revolve around self-testing and self-regulation, putting a moderate burden on AI companies. By contrast, more stringent proposals, such as independent external evaluations and mandatory government pre-review models, are unlikely to win bipartisan support. If the Democratic Party wins either house, the report predicts that it will investigate large technology companies to review AI development, security practices, and data collection. On the data center side, the Democratic Party may propose excluding some tax benefits and push for specific data center taxes, but the Republican Party may block stricter regulation.