Implications of the American mid-terms

Well the results are mostly in, and it looks like the Dems have taken both houses of congress (though it may take a while to confirm Virginia).

How does this affect us? Lots of ways, big and small. The Dems are less likely to go for the new world trade agreement so close to Gordon Brown's heart, especially with a slowdown in the US economy next year. The EU might have to pursue bi-lateral agreements with India, China and Brazil instead.

The Dems have also pledged to end Bush's ban on the states negotiating their Medicare drug bill down when they buy in bulk. (All other health care systems negotiate this, including the NHS). Drug stocks, including stocks like Glaxo, have already dropped in price anticipating lower revenues, but this measure should save the US govt a lot of money, helping with their deficit.

The Dems also plan to restore lapsed legislation that require tax cuts or spending increases to be offset with spending cuts or tax rises. This too should help the deficit and restore confidence in the US system. The dollar is likely to rise as a result.

They plan to reverse Bush's limits on govt funding for stem cell research. Britain had been doing well out of the Bush ban, as researchers came here instead, so this is not quite so good for us.

The Dems may also take a greater interest in climate change and energy policy (they plan to investigate the Bush administration's energy plans). If they decide to introduce a fuel tax (for energy security reasons as well as climate ones), there would be several consequences; the commodity markets will likely panic about falling American oil demand and the oil price should tumble; this in turn should reduce the revenue for places like Russia and Saudi, making them more amenable; and it should make it easier to pursue climate change policy here in Britain, if we can point to American action. There is an obstacle - the American public is hostile to the idea, and the Dems might wait two years till they've safely got the presidency before doing anything.

Finally Iraq - Rumsfeld has been sacked, and it looks like Bush is manoeuvring to accept any recommendation from James Baker III to exit Iraq. This will benefit Britain - it will free up troops for Afghanistan, it will help Labour if we're gone from Iraq before the next election. Obstacle - Blair might find it hard to swallow the "cut and run" scenario - in which case he'll probably have to leave before it is implemented. There is time for him and others to get their heads round this - the Baker report doesn't come out till January.

Was Iraq the cause of the change in Congress? It's tempting for our media to conclude so. But Brits on the ground in places like Georgia are saying it was more disgust at overspending/pork-barrelling, and at the hypocrisy of religious conservatives. One said that Rush Limbaugh was the Republican equivalent of Michael Moore in this election, putting moderate people off. We'll never know - all politics is to some extent local and unfathomable to outsiders.