By  on November 2, 2010

WASHINGTON — With Congress up for grabs, today’s midterm elections could have significant implications for tax, trade and monetary policies.

Barring last-minute surprises, pollsters have predicted a Republican takeover of the House, with Democrats clinging to a majority in the Senate.

Should the polls prove accurate, fashion industry executives anticipate a stronger focus on free trade and tax-cutting initiatives, along with a push to renew expiring tax cuts for the wealthy and middle class. In addition, Republicans have vowed to implement deep spending cuts for federal agencies, which could affect hundreds of social programs, as part of their drive to create a more austere budget.

The GOP could control the House Ways and Means Committee, the key tax and trade panel, and jump-start languishing trade deals with South Korea, Panama and Colombia, although President Obama must officially send the pacts to Congress before they can be considered.

Obama has singled out his support for the trade pact with South Korea and instructed his team to resolve remaining issues, including barriers to U.S. auto and beef exports. The administration has made doubling exports in five years a centerpiece of its agenda and pointed to an agreement with South Korea as a key to reaching that goal.

“Obama has said he wants to do the South Korea FTA and he is trying to lay the groundwork to do that,” said Stephanie Lester, vice president of international trade at the Retail Industry Leaders Association, which backs all of the free trade agreements. “The optimist in me thinks that agreement will go, regardless of who has control.”

Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said if Republicans win control of the House “you would probably see a more robust trade agenda…that many of us in domestic manufacturing might have concerns with.”

The outcome of the election may also affect the prospects of legislation targeting China’s allegedly undervalued currency. The House passed a bill last month that would give the Commerce Department greater leeway in investigating and cracking down on undervalued currency as an illegal export subsidy, which could lead to punitive tariffs on imports from China and other countries. The bill had strong bipartisan support. Democratic leaders in Congress said they plan a lame-duck session, beginning on Nov. 15, when the Senate might vote on the House-passed China currency bill.

“The real question on Chinese currency is the Senate, even in the long term, because I don’t think the Republicans will get control of the Senate,” said Bruce Raynor, executive vice president of the Service Employees International Union and president of Workers United. “There is more of a question of whether there is the will in the Senate to do something.”

If the currency legislation does not pass this year, it will have to be reintroduced because a new two-year congressional session begins in January.

“If it doesn’t pass in a lame duck, its prospects become quite dim,” Tantillo said.

Historical trends show that the party in power traditionally loses seats in midterm elections, and Democrats “had substantial gains in the last two cycles,” said David Redlawsk, a political science professor at Rutgers University and director of the school’s Eagleton Center for Public Interest Polling. “On top of it, you throw in the economy. There is basically good evidence that when the economy is doing as badly as it is, voters typically blame the President…and that is a double-whammy for Democrats.”

Democrats have a 77-seat House majority. The GOP needs to win at least 40 seats to take control with a majority of 218. In the Senate, Democrats control 57 seats and have two independents that caucus with them, bringing their total to 59, while Republicans have 41 seats. To win a simple majority, they need to pick up 10 seats but the Senate is controlled by a super majority of 60 votes, the figure needed to overcome filibusters by the minority party.

“If Republicans win [in the House], it will be an antiregulation, antitax agenda, but it would require getting it through the Senate and getting the President to sign it,” Redlawsk said. “The other thing that could be a problem for the Obama administration would be it still has to pass a spending bill [funding government agencies].”

Phillip Swagel, a visiting professor at the McDonough School of Business at Georgetown University and director of the school’s Center for Financial Institutions, Policy and Governance, said Republicans will have a “negative” agenda in trying to overturn health care reform, and a positive agenda in trade and taxes.

“The Obama administration fundamentally wants to move forward on trade, but they have been stymied by the left wing of the Democratic party,” Swagel said. “My guess is if you have Republicans in the majority in Congress, you could have a productive period on trade and they could find common ground with President Obama.”

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