Democrats have won control of the US House of Representatives, providing a check on President Donald Trump, while the Senate remains in Republican control
Washington (AFP) - Against the backdrop of a strong economy, Republicans avoided blowout losses in the key US midterm vote but President Trump's economic agenda will be sharply curtailed by Democratic gains.
With a divided Congress starting next year, and the 2020 race for the White House now under way, the polarization in Washington means major economic legislation is highly unlikely, analysts said following Tuesday's nationwide elections.
However, Republicans almost certainly would have faced steeper losses if not for the low unemployment, rising wages and strong economic growth now prevailing, boosted by recent Republican-driven tax cuts as well as a bipartisan stimulus package in this year's budget.
Despite the prospect of partisan deadlock in the new Congress, Wall Street rallied Wednesday as investors put the elections' uncertainty behind them.
Analysts said the divided Congress meant there were few threats to profits from new legislation.
"I think the Democrats would certainly be a line of defense against any further tax cuts," said Nancy Vanden Houten, senior economist at Oxford Economics.
"I think we may see gridlock on major things but some chance for agreement on a modest infrastructure package." she told AFP.
Republican leaders had been bracing for a backlash against Trump, with the potential losses in the House of Representatives well beyond the 23 seats Democrats needed to seize control.
Some races were still too close to call early Wednesday but even with Democrats winning nearly 30 seats, the result clearly fell far short of Republicans' worst fears of losing 40 or more.
- Avoiding talk of the economy -
The solid US economy likely stemmed the Republican losses.
"The economy is what's keeping Republicans competitive despite Trump. It's a very weird situation," Gary Jacobson, emeritus professor of political science at the University of California San Diego, told AFP late Tuesday.
Republicans were caught in the crossfire between Trump's unpopularity and the economy's strength, he said.
"Normally a president with an economy like the one we have now would be 10, maybe even 20 points higher," Jacobson said. "It's clear that if the economy hadn't been that good there would have been a real blow out."
Republicans largely avoided campaigning on the 2017 tax cuts, which were passed without a single Democratic vote and which many voters saw as a giveaway to the wealthy and major corporations.
Even Trump focused on other issues, including stoking immigration fears to motivate his base in the campaign's dying days.
"We can talk about the economy but the fact is we know how well we're doing with the economy," Trump said over the weekend at a Florida rally. "I want to solve problems."
Midterm elections typically do not hinge on economic concerns and a CNN exit poll showed the economy ranked third among the most important issues for voters nationwide, behind health care and immigration but ahead of gun policy.
Democratic candidates highlighted on health care, seeking to capitalize on the many unpopular and unsuccessful Republican efforts to repeal the 2010 legislation providing access to affordable health care and protecting those with pre-existing medical conditions.
"The economy is too good to have to say anything about it in defense. That's why it was health care, health care, health care," John Aldrich, professor of political science at Duke University, told AFP.
But as the impact of last year's tax cuts fade, and Trump's aggressive tariff policies bite harder, while the Federal Reserve is raising interest rates, the US economy is expected to slow next year.
And Trump -- who said Democrats would "take a wrecking ball to our economy" -- now has two ready-made scapegoats to blame for any slowdown: the Democratic-controlled House, and Fed Chairman Jerome Powell, who he has repeatedly attacked for raising rates.
Vanden Houten of Oxford Economics said she was not forecasting a recession by the time Trump faces reelection in 2020 but the odds were rising.
"The economy is definitely going to be more vulnerable about a year from now," she said.
"I think by the time the presidential campaign is in full swing, it's certainly going to be a fading expansion."
Meanwhile, Trump's newly renegotiated North American free trade deal -- the US-Mexico-Canada Agreement -- is likely to come up for a vote in 2019 but Democrats are unlikely to block it.