Europe Must Prepare for Both US Midterm Scenarios
A Republican victory and a Democratic comeback would create different risks for AI investment, financing costs and the global economy. A commentary by Moreno Bertoldi, and Marco Buti
Marco Buti will speak at the IEP Bocconi Annual Event, “At the Table or on the Menu? Europe, Middle Powers and International Order”, on 18 November 2026 in Milan. He will join the panel on technology, industrial policy and digital sovereignty.
Considerable attention is being paid to the possible outcome of the US midterm elections, but there is little discussion of their potential economic implications.
Yet European policymakers would be making a mistake if they failed to prepare for possible contingencies, as they unfortunately did two years ago ahead of the presidential election.
Consider two scenarios. According to the polls, a Republican victory appears unlikely. It is not impossible, however, given the enormous sums that Big Tech oligarchs are investing to support Republican candidates.
Trump would see a victory as vindication of his policies and would have no qualms about doubling down. Even if he did not distribute the $5,000 promised to every citizen, he would certainly not pursue fiscal consolidation and would continue to encourage Big Tech investment, through the absence of regulation and public procurement, to sustain growth.
Such policies would push interest rates higher. Given the heavy indebtedness of artificial intelligence (AI) companies, high rates, together with the difficulty of generating profits sufficient to justify current investment, could cause the financial bubble to burst, or at least deflate.
To prevent this, the Trump administration could try to intensify the “extractive” character of American power, not so much through new tariffs as by forcing US trading partners to buy large quantities of US Treasury securities to bring rates down.
This would amount to financial repression on a global scale, rather than at the national level where it usually occurs.
Savers and the governments of highly indebted countries would bear the initial costs, as those governments would struggle to place their own debt in the markets. Such repression would also be unlikely to postpone for long the bursting, or at least deflation, of the AI bubble and its inevitable adverse consequences for the real economy.
The other scenario is a “blue wave”, with Democrats regaining the House and the Senate, or at least the former. Yet this would not mean a wholesale reversal of Trump’s policies.
Without the 60 votes out of 100 needed in the Senate to overcome Republican filibusters, Democrats would be unable to pass legislation opposed by the administration.
They would nevertheless hold the power of the purse: the ability to deny funding requested by Trump to finance, for example, a resumption of conflict with Iran or other military adventures. This arrangement would probably ease tensions in the Persian Gulf, helping to lower energy prices.
Trump would also face much closer congressional scrutiny, even while retaining the power to impose new tariffs, making it harder to repeat the trade policies of the first two years of his term.
In the event of a blue wave, the Big Tech oligarchy would face a decidedly less favourable political climate. Although it would be difficult to pass federal legislation regulating AI, measures would be introduced at state level, including with Republican support, to block or slow the construction of new data centres.
Public opposition to these enormous facilities, with their heavy demand for energy and water, cuts across party lines. Such developments would affect stock-market valuations, curb AI investment and slow economic growth in the United States and globally.
Coexistence between a Congress controlled wholly or partly by Democrats and the Trump administration would also end up causing repeated federal government shutdowns and, more seriously, a confrontation over raising the debt ceiling.
As in the past, the latter could trigger a game of chicken between the two sides, exposing the United States to the risk of default. That risk is greater today because Trump 2.0 is much more radical and unpredictable than during his first term.
The uncertainty arising from the risk of default could push interest rates still higher, particularly penalising European countries with large deficits and high public debt.
The US midterm elections will therefore have significant economic consequences even if Trump emerges defeated. It is essential that European policymakers avoid being caught unprepared again and draw up contingency plans now to mitigate a shock that could originate on the other side of the Atlantic.
This analysis has not considered a scenario in which Trump refused to recognise the election results and declared a “state of emergency”, an outcome at the far end of the Gaussian curve.
We have learned, or should have learned, however, that with Trump, events that are highly improbable ex ante can become possible, if not the norm, ex post. Having a contingency plan ready for this eventuality too would be a matter of simple prudence.
A previous version of this article was published by Il Sole 24 Ore
IEP Bocconi does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
