(Not So) Fun Fact: Since the conflict with Iran began, U.S. businesses and consumers have paid an estimated $152 billion in higher gas and diesel prices; this amounts to roughly $1,160 per household.

Wake Up and Smell the Crushing Rejection of Current Policies

What’s Happening: The midterm elections have come and gone, with Democrats winning substantial majorities in both the House and Senate. To no one’s surprise, exit polls showed nearly 40 percent of voters said the economy was their top issue. Of exit poll respondents, 75 percent indicated that they believe the economy is in a “not so good” or “poor” condition and 66 percent stated that President Trump’s policies have worsened economic conditions in the country. The fact that voters cared most about the economy, believed the economy was not in great shape, and tied economic conditions to Trump Administration policies largely explains the historic midterm results.

Why It Matters: As the Shipment covered extensively over the past few months, the general dissatisfaction with the state of the economy can largely be traced to two things: higher energy costs and tariff policies. Both have contributed to higher prices for U.S. households, with 63 percent of exit poll respondents stating that prices are higher than usual due directly to President Trump’s policies. This should not be a surprise since the conflict with Iran disrupted global energy markets and historically high tariffs raised costs for virtually all U.S. businesses and consumers. Higher energy prices have cost U.S. businesses and consumers an estimated $152 billion – over $1,160 per household. Similarly, President Trump’s tariffs have cost hundreds of billions in both direct and indirect costs due to policy uncertainty, trade war retaliation, and lost sales. For instance, the Shipment estimates that Section 301 tariffs relating to forced labor cost consumers and businesses between $53–$55 billion annually while Section 232 national security tariffs add another $100 billion annually. These two examples alone represent historic tax hikes passed onto U.S. consumers, implemented unilaterally through the executive branch with little discussion and zero consideration by Congress.

These added costs were concentrated in areas and among constituencies that repudiated the administration’s policies in the midterm elections. According to the data, 66 percent of respondents believe that tariffs hurt the national economy and 64 percent say they hurt their local economy. Agriculture-heavy states such as Iowa, Kansas, Maine, and Ohio were particularly impacted by tariff policies which raised input costs for farmers and small businesses. At the same time, trade wars resulted in lower sales of agricultural goods to once reliable export markets as well as retaliation from trade partners such as Canada and China. Recall the Shipment’s previous analysis of the U.S.-China trade war’s hit to soybean exports as well as the various government aid packages that were required to bailout suffering farmers. Texas and Michigan were also among the most impacted states in terms of tariff costs – paying an estimated $42 and $25 billion respectively – and states where Democrats scored notable victories. This is not to say tariffs and energy prices are the only reason for this week’s midterm results, but they are certainly major factors. The midterms should serve as a lesson that the cost of living – one of the main issues President Trump ran on – is a vital concern of voters. Ignoring those concerns and instituting policies that directly raise costs have electoral consequences. Politicians should listen and readjust their economic agenda if they want to succeed going forward. That almost certainly requires Congress – at long last – stepping up to the plate to take back their authority over trade policy, sign trade agreements, and reduce the impact of tariffs.

Looking Ahead: The extent to which a Democrat-led House and Senate will roll back the Trump Administration’s tariff policies remains to be seen. Both Democrat and Republican members of Congress have introduced legislation that would rein in the president’s tariff authority. For example, likely incoming Finance Committee Chair Senator Wyden (D-OR) seeks to eliminate Section 122 and 338 tariff authorities and constrain the executive branch’s use of Section 232, 301, and 201 via greater congressional oversight. Over the last few months, many members introduced legislation that would compensate U.S. taxpayers for tariff-related costs. Sending taxpayers tariff-related stimulus would be by far the more popular option and it would have a chance of being signed by the president who could spin it as a successful result of his tariff agenda. On the other hand, restricting the president’s authorities would almost certainly require a veto-proof congressional majority. Regardless of how far Congress decides to go on trade policy, there appears to be a significant appetite in Congress for greater involvement.