Surprises occur with every election cycle; the only questions are how many and where. The American midterm elections in 2022 were no different. The GOP appears to be on course to retake control of the House of Representatives, even though the final results are still unknown as of the time of this writing. And it is obvious that, even if they do, it will be by a much smaller margin than many commentators or Republicans had hoped.
Without a question, the business sector favored Republican victory in House elections. The U.S. Chamber of Commerce, for instance, supported Republicans strongly in close races this election year, endorsing eight Republican candidates to oppose Democratic incumbents while endorsing zero Democratic candidates to challenge Republican incumbents.
However, the desired result went beyond just having control of the congressional chambers. Marginality is important, especially in the House, and the ultimate margin for Republican control of the House seems to be close enough to the worst-case scenario for business.
Without a large majority, Kevin McCarthy, the rumored House Speaker-in-Waiting, might at any time find himself at the whim of any faction in his caucus that wants to make demands about whatever issue it chooses. This is a conundrum from a variety of political and policy perspectives, but it will be especially problematic for the business sector, which is looking for some relative stability and bipartisan dealmaking.
McCarthy would have had more space to maneuver to participate in such dealmaking if his margin had been better. Progress could have been made more easily on both day-to-day governance and incremental areas of bipartisan agreement, even though any form of grand bargains would likely still be utopian dreaming. Even these basic goals are now under danger. In comparison to what the corporate community would now endure, even a Democratic hold on the House and Senate would have been better. Markets would at least have been able to function with some security that fundamental governmental operations would continue unhindered, even while some new legislation that was unpopular with business may have advanced in a Democratic-controlled Congress.
Instead, for the next two years, general legislative deadlock is more likely to be the rule. The likelihood of a government shutdown or perhaps a debt limit default is higher than it has ever been. It goes without saying that such circumstances would have major ramifications for firms, employees, and the economy as a whole. Beyond these low-hanging fruit, businesses with legislative policy wish lists—even for small or uncontroversial issues, like seeking technical fixes to Inflation Reduction Act provisions—are likely to find those exceptionally difficult to navigate given the small number of legislative vehicles that are likely to be available for them to be attached to.
Republicans won’t be able to adopt their favored policies as long as they don’t have control of the White House (and potentially the Senate). Because of this, House Republicans have already hinted that they want to prioritize investigations over legislation. While many of these will center on issues largely of a political nature—Hunter Biden, border security, the withdrawal from Afghanistan, the FBI and Department of Justice, among others—some will specifically involve certain industries and the business community. The top priorities for Republican-controlled House committees will be investigations into major technology and social media companies, investor and corporate environmental, social, and governance policies, recipients of Covid and infrastructure funding, the Inflation Reduction Act, and ties between the United States and China in business.
History teaches us that the party in possession of the White House is more likely to try to bypass Congress entirely through regulatory and presidential acts when there is a divided government. The Biden administration may feel less comfortable exploring the limits of its authority in light of a recent spate of Supreme Court decisions showing the limitations of agency rulemaking and presidential orders.
The upcoming 2024 presidential election will serve as a backdrop for everything that takes place in Washington over the course of the following two years. Some have argued that Republicans may have more room to separate themselves from the former president Trump as a result of the midterm losses suffered by numerous prominent candidates who were supported by and ran their campaigns in the former president Trump’s manner. However, due to the narrow majority, only few House Republicans will need to support any Trump orders in order for Speaker McCarthy to be compelled to resolve a problem to Trump’s satisfaction.
With a weak majority in Congress, everything is more difficult regardless of party control. The recent two years of a Senate controlled by ties and a Democratic House with a single-digit majority served as a reminder to anyone who had forgotten that each member’s personal power is inversely and exponentially related to the size of their majority. However, the following two years are likely to further test the boundaries of what new precedents can be formed in a political context when it seems that no established norm can be depended upon. All of this combines to create a situation where business is going to struggle, not just to find chances to gain proactive legislative victories, but even to have short-term trust in some of the fundamental components of market stability.
