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Last Updated: Thursday, 9 November 2006, 15:56 GMT
Economic challenges facing the Democrats
ANALYSIS
By Steve Schifferes
Economics reporter, BBC News

GM production line in Michigan
The Democrats want to help the prospects of low-paid workers
The Democrats have captured control of the US Congress. But how will they tackle the key economic issues?

The Democratic victory in the 2006 mid-term elections was driven by economic discontent as well as concern over corruption and the war in Iraq.

But now that the Democrats are in control, they will have to show that they have the ability to tackle key issues that concern the nation.

Business interests, meanwhile, are nervous that the Democrats will target them, particularly those sectors that are seen as too close to the Republican Party.

In fact, the Democratic agenda is likely to take a moderate tinge - both because the margin of their victory is quite narrow, and because many of the newly-elected Democrats are moderates.

Trade and the deficit

On the big economic issues the Democrats are unlikely to show as much support for free trade as Mr Bush, who made it one of the economic centrepieces of his administration.

US trade deficit

Although the Democratic leadership backs the continuation of the world trade talks, which stalled in the summer after four fruitless years, many new Democrats such as Senator Sherrod Brown from Ohio campaigned on a protectionist platform.

This could reduce the chances that Mr Bush can get an extension of his authority to freely negotiate trade deals, which expires in July 2007 - and if he doesn't, that could effectively put the trade talks on indefinite hold.

The protectionist faction of the Democrats could also try to force the Bush administration to put more pressure on China to raise its exchange rate, in order to increase the price of Chinese goods exported to the US.

This might help reduce the huge US trade deficit, which is running at $700bn yearly.

Budget woes

On the budget deficit, the Democrats have made tackling it one of their central planks.

And they are opposed to making permanent the tax cuts Mr Bush introduced, arguing they have mainly benefited the rich.

But there is disagreement on whether it is spending restraint or increased taxes that are the best approach to cutting the gap.

us unemployment
One measure that is likely to be quickly agreed is a budget-offset measure which would ensure that any new spending proposals are balanced by cuts elsewhere.

Mr Bush says his policies, and economic growth, are bringing down the deficit anyway.

And he might veto any tax increases that Democrats might propose.

Helping the middle class

The Democrats have pledged to help the ordinary Americans improve their standard of living - real wages have barely increased despite economic growth.

US petrol station
Higher petrol prices worried electors - and led to calls for energy security

One early measure would be an increase in the minimum wage, which has not been raised for three decades. Several measures to tackle this were agreed in state-wide referendums during this election.

Democrats also advocate extra help for college students towards the cost of tuition, in order to improve skill levels and make the US more competitive.

But if the recent economic slowdown continues, and leads to higher unemployment, they may get some of the blame - especially if higher taxes are also seen as one of the causes.

However, day-to-day economic management decision will remain in hands of the Bush administration, and the US central bank, the Federal Reserve, which has recently halted a series of interest rate rises.

Health and energy

Two areas where corporate America might be right to be worried are the oil sector and pharmaceutical industry.

BP workers scanning oil pipelines at the Prudhoe Bay oil field in Alaska
Democrats want to tackle the role of the oil companies

Democrats were furious when the Bush administration prevented the US old-age health care system, Medicare, from negotiating lower drug prices with pharmaceutical companies when a prescription drug benefit was introduced in 2004.

And they firmly believe that energy security is a key issue - and are critical of the oil industry and its role in the administration.

The Democrats may try to find money to boost alternative energy projects, and may want to try to get the Bush administration to re-examine its policy towards climate change.

But the Democrats may face internal division on expanding oil exploration and building more nuclear power plants, as well as signing up to the Kyoto targets.

Business friendly?

The Democrats are likely to be less favourable towards small business than the current administration, especially in relation to tax breaks.

Tougher ethics rules may change - at least for a short time - the way that corporate lobbyists operate in Washington.

But the new Democratic leadership, although it may appear left-wing, will be keen in general to work closely with business and industry - and many Democratic Congressmen already have close links with big firms in areas such as the media, computers and banking.

Moves for further deregulation, and even perhaps a roll-back in some of the auditing requirements in the Sarbanes-Oxley bill that were put into place after the Enron scandal, may also gain bipartisan support.

budget deficit




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