Voters have sent a message to Trump on tariffs, but the White House still holds significant power

For Americans hoping the blue wave of Democrats taking Congress will help bring down high consumer prices, they will be disappointed.

American voters – and the wider world – should brace for more of the same Trump administration policies for the next two years, although with greater Congressional scrutiny and economic control over budget decisions.

Despite Democrats winning a sweeping majority in the House and the Senate, granting them the power to pass laws, President Donald Trump still has veto power to block this process. This veto can only be overruled by a two-thirds majority of Congress, which the Democrats don’t have without Republican support.

The Democrats’ significant midterm wins reflect broad concerns over the Trump administration’s handling of domestic and international issues, namely cost of living, health care, artificial intelligence and the Middle East war. At the centre of a number of these issues is trade.

Tariffs have made inflation pain worse

Globally, households are feeling the pain of higher prices. In the US, Trump’s tariffs – which are taxes on imports – are a big part of that story.

Trump has opted for a trade strategy focused on unilateral actions, distancing the US from the rules-based system underpinning global trade that has prevailed since the end of the second world war.

Using executive orders and a Republican majority in Congress, Trump has implemented an unprecedented tariff strategy, largely unimpeded.

The intent was to promote America’s interests and rebalance trade deficits with partners by levying tariffs. The current US tariffs on Chinese goods sit at 35%, while Canada was recently hit with 50% tariffs on some goods. Most countries sit at 10%.

A recent New York Federal Reserve report showed tariffs have increased inflation on 67 types of US goods, and the costs of those goods would have fallen without tariffs.

Trump’s America First trade policy has initiated more than 50 changes to tariff policy since he took office in January 2025, using a range of legal mechanisms. As of September 2026, 54% of US imports had an applied tariff, up from 44% a decade ago. This has, on average, increased taxes by US$820 per American household in 2026.

Northern states hit hard by the trade war with Canada

The sweeping tariffs have created uncertainty for American businesses reliant on international supply chains, as well as for foreign companies selling into the US market.

Trump’s goal was to promote greater reliance on American products. However, decades of globalisation have created complex, multinational supply chains, meaning domestic industries in the US aren’t cost effective or established enough to produce or manufacture locally.

It is also importers, rather than exporters, who bear the cost of the tariffs. Small businesses have been hit the hardest in the US.

The ongoing trade war with Canada – the US’ second-largest trade partner – has been broadly unpopular across the US and put additional economic pressure on the northern border states.

Key sectors, including cars, trucks, machinery and metals in Michigan and Ohio, have been hit hard. Voters in these states were able to draw a direct line between Trump’s trade policy and their own increased financial pressures.

What to expect from a Democrat-controlled Congress

The Democrats will have realistic expectations of what can be achieved when they regain control of Congress. The answer is not much.

We should expect to see increased political activity on trade matters. The Democrats are likely to hold Congressional hearings and investigations, force votes and refuse to extend tariff powers.

They are also likely to take a close look at the Trade Act 1974, which has allowed the Trump administration to impose additional tariffs on trade partners, such as those against Canada.

It’s unlikely, however, that there will be any material change to trade policy, as Trump retains the power to veto legislative changes. In fact, the White House has flagged increased executive-led decisionmaking to come.

In this context, the Democrats’ focus will be on the horizon: the 2028 election.

Democrat-led investigations will likely dig into the processes and decisions behind tariff rates for certain industries and trade partners, with a view to shaping a cost-of-living narrative that helps the Democrats at the 2028 elections.

To do this effectively, they will also need an agreed internal position on trade policy. Democrats broadly agree tariffs are bad, but don’t yet have a common view on an alternative.

What this means for Australia

Australia is less exposed than many other countries. Around 5% of Australia’s exports of goods go to the US. The Albanese government’s response has been one of “resilience over retaliation”.

But the Democrats’ success in the midterms is an opportunity for Australia to think about the longer-term trade relationship.

Trump’s trade strategy was initially a surprise to its allies, not least because Australia has been a loyal and consistent trade partner. The US maintains a significant trade surplus with Australia, across goods like cars and electronics and services like investment and transport.

Yet Australian exports have not been spared, despite the longstanding Australia-US Free Trade Agreement. Australian exporters are currently facing a 12.5% tariff, with some exemptions.

The bottom line is that a Democratic Congress does not have the ability to change the Trump administration’s current trade strategy.

The midterm results won’t bring an end to the tariffs, despite the broad distaste for them in both parties. And the Democratic position on trade in the lead-up to the 2028 presidential election is still unclear.

Australia, however, continues to play a strategic role for the US in other areas, including critical minerals and the strategic and defence partnerships AUKUS, Five Eyes and the Quad.

Australia will need to pay close attention to US moves on tariffs over the next two years. Like-minded allies and partners will be crucial in ensuring economic security during unstable times.