Transcript: How will the Democrats' sweep shape policy and markets?

Marc Filippino speaks to James Politi, Katie Martin and Gideon Rachman

This is an audio transcript of the FT News Briefing podcast episode: 'How will the Democrats' sweep shape policy and markets?'

Marc Filippino

Good morning from the Financial Times. Today is Thursday, November 5th, and this is your FT News Briefing. After their best midterm results in 50 years, Democrats celebrate.

Abdul El-Sayed audio clip

Michigan, we did it.

James Talarico audio clip

We just took back Texas.

Annie Andrews audio clip

I think we just made some history.

[CROWD CHEERING]

Marc Filippino

But will the party work with US President Donald Trump?

James Politi

To the extent that he is a lame duck, I think he might be an angry lame duck.

Marc Filippino

And the victory has ushered in a new political landscape for investors.

Katie Martin

This is a big pushback from voters to the things that have made investors' lives difficult over the past couple of years.

Marc Filippino

Plus, the FT's Gideon Rachman explains how Trump might respond to voter frustration about the Iran war.

Gideon Rachman

The American people have made themselves very clear on this war. They don't like it. So it would be tough but not impossible for Trump to just ignore that.

Marc Filippino

I'm Marc Filippino, and here's the news you need to start your day.

Democrats swept both chambers of Congress in the midterm elections on Tuesday. It shows just how dissatisfied American voters are with the past two turbulent years in US politics, whether that be with Trump's tariffs, rising prices because of the ongoing war in Iran, or the domestic immigration crackdown.

James Politi

The Democrats received a huge mandate from the American people. American voters kind of bought into their rejection of Trump and his policies.

Marc Filippino

That's the FT's Washington bureau chief, James Politi. He says that come January, the Democrats will go full steam ahead. They're gonna try to extend healthcare subsidies and roll back tariffs, but these efforts will face some political gridlock.

James Politi

Of course, they still have Donald Trump in the White House, and they don't have majorities that could override a presidential veto, which means that everything will have to be negotiated, and it will be very difficult to find common ground.

Marc Filippino

A quick refresher. The sitting president could veto any legislation that Congress passes.

Now, Congress can override that veto, but only if they get two-thirds of the Senate on their side. And while Democrats won big in the midterms, they didn't win that big. James had a phone conversation with Ken Martin yesterday. He's the chair of the Democratic National Committee, and Martin says the ball is in Trump's court.

Ken Martin

We're going to stand up and push legislation forward to help address the concerns that we heard on the campaign trail. Really, the question is whether or not Donald Trump's going to hear that message, and will he actually look to find common ground with Democrats?

Marc Filippino

And here's what President Trump said to Fox News about his veto power.

Donald Trump audio clip

They'll send over things that are insane, and I'll veto them, and after a couple of months of vetoes, they'll call and they'll say, how do we get this stuff done? And we'll work together.

Marc Filippino

But James says how that plays out is pretty unpredictable.

James Politi

It's very difficult to calculate how Trump is going to respond specifically.

We haven't seen any kind of detailed sort of statement from the White House about where they might be willing to engage and compromise and where they're not. So I think we're in for a very kind of rocky two years.

Marc Filippino

It'll be a delicate balancing act on both sides, but James thinks that in the long run the Democratic sweep may redefine Trump's political power in the sense that he's got much less of it.

James Politi

To the extent that he is a lame duck, I think he might be an angry lame duck. I think one thing that will be very interesting to see is whether there are other members of the administration, cabinet members kind of coming to terms with the fact that Trump may not be in their own best interest to follow.

The assumption has always been that Trump would be the dominant force in the Republican Party for the next two years, but I think the extent of the defeats call into question his own political standing, and even his role as a kingmaker for 2028.

Marc Filippino

That's the FT's James Politi in Washington D.C.

[MUSIC PLAYING]

Investors are feeling pretty good after the Democrat sweep. Stocks around the world jumped yesterday, and US Treasuries got a boost too. The FT's markets columnist Katie Martin argues that's because the elections mean markets can return to something resembling normal. Katie's here to talk about that.

Hey, Katie.

Katie Martin

Hey, how you doing?

Marc Filippino

I'm doing all right, but maybe not as well as investors. Why are they feeling so enthusiastic about the results?

Katie Martin

Well, I think it falls into three areas. So there's what has not happened, what has happened, and what might happen. But what has not happened is that we don't have a huge dispute over these results.

You know, Trump has accepted defeat, and so we don't have months and weeks of argument over who won which race and lots of dispute over what happened at the ballot box. That's very positive. The second thing is, you know, what has happened here is this is a big pushback from voters to the things that have made investors' lives difficult over the past couple of years.

There's, you know, disruptive, hard-to-predict policymaking, ripping up of international alliances. There's the "liberation day" tariffs, the assault on the integrity of the independence of the Federal Reserve. All of that stuff, markets have not coped well with that over the past couple of years, and this is voters' way of pushing back at that too, so that is very helpful for investors.

And what might happen is that the result of these elections paves a way towards a proper end in the war in Iran. It's very clear that voters don't like it any more than investors do, and so that's a big reason why you've got the oil price coming down in response to the results, and maybe that helps to pull borrowing costs down too.

Marc Filippino

This all makes a ton of sense to me, Katie, but I'm also still a little confused because Democrats are generally regarded as the party of regulation. Why isn't that running through investors' minds?

Katie Martin

So the point about regulation where this could get quite sticky for markets is around AI. So, there was some analysis out from Goldman Sachs, and they were saying that about 45 per cent of data centre projects in the States are now at risk of short-term delays as a result of federal and state-level results in the midterm elections.

You could look at it and say, look, a little bit of regulation and some local-level delays to data centre projects, that could be actually just what we all need to take a little bit of the steam and excitement out of the AI trade and just slow it all down a bit. Long term, maybe that'd be better. But again, it does also raise the potential that some of these projects will just kind of get kiboshed and they just won't happen, and then we've got a serious problem with a lot of the borrowing that's happened to fuel some of these projects.

So the AI bit and regulation is definitely a thing that you can worry about.

Marc Filippino

What are some of the other risks that you're looking out for?

Katie Martin

So other stuff that investors are talking about is to keep an eye on, you know, you Americans, you do this all the time, this whole thing with the debt ceiling and shutting down the government and, you know, does this result make it more likely that you will have tussles over the federal budget in the months and years ahead?

Does it make it more likely that we have government shutdowns? That's a potential banana skin. So, it's not like this result necessarily, you know, opens up the gates to nothing but joy and sunshine and flowers in markets. But it does seem to take away a lot of the sort of chaotic elements, and I think that is why markets have responded so positively.

Marc Filippino

That is the FT's Katie Martin. Thank you, Katie.

Katie Martin

Pleasure.

[MUSIC PLAYING]

Marc Filippino

The results of the US midterm elections are a massive shake-up for American domestic politics, but what do they mean for international relations? FT's Gideon Rachman has been grappling with that question. He joins me now. Hi, Gideon.

Gideon Rachman

Hi.

Marc Filippino

So Gideon, what have you been hearing from diplomats and foreign leaders in response to the election results?

Gideon Rachman

Well, I think Trump will be regarded as a very diminished figure. There'll be a certain amount of taunting among the many foreign leaders that Trump has annoyed or belittled over the years. You know, one thinks of people like Canada's Mark Carney and so on. Zelenskyy in Ukraine has had a pretty rough ride with him as well.

And yeah, I think that Trump will henceforth be a pretty diminished figure. He's due to meet Vladimir Putin, potentially, and certainly Xi Jinping of China later this month at the Apec summit in Shenzhen, and I think he will arrive as a less authoritative president than he might otherwise have been.

Marc Filippino

Yeah, a diminished figure is an interesting way to put it, Gideon. Let's just rewind a little bit. He told our colleague, Ed Luce, that he wouldn't strike Iran anytime soon. Investors seem to be taking Trump at his word, because oil dropped below $100 a barrel yesterday for the first time in months.

Could we be seeing a softer tone from Trump going forward?

Gideon Rachman

Hard to say. I think with a more conventional American president, you could probably make more confident predictions, but Trump is all over the place. So yes, he's said these things recently to Ed Luce and others that he's going a bit off the idea of attacking Iran, which he had trailed very explicitly as something he might do after the midterm elections.

But, you know, in previous times, we've heard Trump say he was going to extinguish Iranian civilisation and then a few days later saying, no, no, you know, we're gonna make peace with them. We've got a great relationship with them. So he is incredibly volatile and very prone to changing his mind. And I think if you're looking for a big picture, though, a second attack on Iran, a really intensified one after the midterms never made much sense in military terms as far as I could tell, because it didn't offer really the prospect of toppling the Islamic republic or forcing them into the kind of deal Trump wants.

And now, as well as that sort of military constraint, there is a political constraint. The American people have made themselves very clear on this war. They don't like it. So it would be tough, but not impossible for Trump to just ignore that.

Marc Filippino

What about Israel? On Tuesday, the day of the election, Trump announced that he would be ending roughly $4bn in annual military aid to Israel.

Are we gonna see a change in how that relationship looks?

Gideon Rachman

It's looking that way. I mean, I think if you were the Israeli government, you would be pretty concerned, because Israel used to benefit from bipartisan support in the US, but now the progressive wing of the Democratic Party is, I think, you know, strongly anti-Israel, regularly accuses Israel of having committed genocide in Gaza, and voices in the Republican Party, the Tucker Carlson wing, if you like, are also very anti-Israel.

Plus, I think that Netanyahu is seen as the guy who persuaded Trump into the Iran war, which went badly. So generally, I think support for Israel in the US is much softer than I can remember it at any time really in my professional lifetime, and I find it hard to see how the Israelis will turn that around.

Marc Filippino

What can the Democrats actually do to keep Trump in check when it comes to foreign relations?

Gideon Rachman

Relatively little, maybe less than you think, formally speaking, because of course he remains the commander-in-chief of the US Armed Forces. The Congress's role is more of a kind of monitoring, holding to account role.

They have the power of the purse, so they could begin to restrict funds for, say, the Iran war. They might try and pass a war powers resolution, though Trump could veto that, but clearly he's had a big rebuke from the American people, and he has to take that into account now.

[MUSIC PLAYING]

Marc Filippino

Speaking of foreign policy, Russia is strengthening its military support for Iran, even though its war with Ukraine is pretty demanding. Moscow agreed to supply the Islamic republic with 90 launchers for advanced guided missiles, as according to a production schedule seen by the FT. These launchers go on helicopters and are widely used by Russian forces in Ukraine.

The agreement is another example of how the two allies have upped their military ties since 2022. One analyst said it also shows just how much less Russia cares about what the west wants.

You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest news from the Financial Times