US midterms could be costly

The triumph of US Republicans in mid-term elections could affect the global recovery

Supporters cheer before Republican Senator for Kansas Pat Roberts makes his victory speech. (Charlie Riedel / AP)

Two years away from the next US presidential election and Barack Obama’s party has been hammered in the midterm elections. Across the US, Republicans pushed out Democrat senators and held on to their own. The end result was that the Republicans now control both the upper and lower houses, making the next two years potentially very difficult for Mr Obama.

And so what? American political campaigns are fought on internal issues, often very local ones. But the elections also matter beyond America’s shores because of the precarious nature of the global economy and the US’s pivotal role in that system.

The economies of Europe, Asia and North America are stuttering, some worse than others, but all are, at best, still recovering from the 2008 global financial crisis. The US remains the engine of global growth, but even the most optimistic assessment puts growth over the next few years at barely 2 per cent. Anything that jeopardises that modest number will have repercussions far from America’s shores.

Enter the Republicans. The past few years have seen repeated conflict between the two houses of Congress and the White House, with serious consequences for the US and the world. In both 2011 and 2013, US politics was paralysed because of an inability for the two parts of the government to agree on a policy over debt. The result was serious: in 2011, one of the main ratings agencies, S&P, downgraded the US economy’s rating for the first time.

It is the possibility and perhaps the likelihood of similar clashes that makes economy watchers nervous. The US is in the midst of negotiating two trade deals with the important trading blocs of Europe and Asia. Congress could stall that or even block these deals, with far-reaching consequences.

The new Senate majority leader, Mitch McConnell, has suggested he will work positively with Mr Obama. But as the next election draws nearer, the temptation to avoid offering Democrats gifts they can parlay into votes will be extremely tempting. Local US politics may yet affect the living standards of billions of non-Americans.