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LIVE MARKETS-Tariffs, geopolitics and AI: what if Democrats win?

By Reuters News

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TARIFFS, GEOPOLITICS AND AI: WHAT IF DEMOCRATS WIN?

Investors are weighing what a so-called Democratic sweep in this week's US midterm elections could mean for markets. Kairos strategist Alessandro Fugnoli believes a Democratic Congress could create greater political friction in Washington, but practical constraints mean investors should not expect dramatic changes on trade, public finances or AI.

Below are views from a Kairos note last week, framed as answers to questions investors may be asking.

  • What about geopolitics? "In general, a Democratic Congress would take a harder line on both Russia and China", putting it at odds with Trump's approach. While Congress would not determine foreign policy, Fugnoli argues a Democratic victory could increase pressure for a tougher stance, making any negotiation more complicated.

  • Can tariffs really be rolled back? Not necessarily. Fugnoli says economics may trump politics. "The problem for Democrats is that scrapping Trump's tariffs would leave a hole of more than $200 billion in the budget." He also sees limited implications for public finances from a possible Democratic push for higher welfare spending and a higher minimum wage, with the effect on the federal deficit limited to an increase of "around two or three tenths of a point."

  • Is AI regulation a genuine threat? Fugnoli thinks those fears are overdone. "There will certainly be hearings and investigations, but concrete action is unlikely." Support for AI remains bipartisan at the federal level because of its importance for national security and US leadership, meaning "the data centres will get built, even if there are some delays along the way."

To conclude, Fugnoli says: "Trump will not become a lame duck, and Democrats will make life difficult for him in Congress. The next two years look set to be turbulent."

(Danilo Masoni)

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