Democrats retake Senate and House in midterms

Presidential veto to keep trade pressure intact

Shipbuilding, chip tax credit fate hinges on year-end votes

[Provided by KOTRA]
[Provided by KOTRA]

The Democratic Party swept both chambers of Congress in the US midterm elections held Tuesday (local time), but tariffs and the broader trade policy stance are expected to remain unchanged, according to an analysis by the Korea Trade-Investment Promotion Agency. KOTRA published its report, "2026 US Midterm Election Results and Implications," Thursday.

KOTRA said the Democrats will hold the initiative on budgetary matters and Senate confirmations when the 120th Congress convenes in January, but the president is likely to exercise veto power against contested legislation. The expiration of the federal government's continuing resolution on Dec. 11 was flagged as a variable that could affect budget negotiations in the incoming Congress.

Tariffs are expected to remain in place on the basis of executive authority. Even after a federal court ruling against tariffs, the administration has continued to impose them under individual statutes — including Section 301 of the Trade Act, which targets unfair trade practices, and Section 232 of the Trade Expansion Act, which invokes national security grounds. KOTRA said that even if Democrats pursue legislation to curb the president's tariff authority, a veto would likely block it, meaning trade pressure through tariffs will continue.

The scope of Section 232 tariffs has been expanding — from steel, aluminum, copper, automobiles and auto parts to pharmaceuticals and drones. A Section 301 probe into "structural overcapacity" targeting 16 economies, including South Korea, was also identified as a key issue to watch.

In Congress, Republicans retain the ability to block floor votes in the Senate through the filibuster, and the presidential veto remains available, making sweeping policy shifts — such as restoring electric vehicle subsidies or overhauling immigration and healthcare — unlikely. By contrast, KOTRA said shipbuilding, semiconductors and power — areas where both parties share common ground — are seeing active legislative discussions and could present opportunities for South Korean companies.

On shipbuilding, both parties have co-sponsored the SHIPS for America Act to rebuild the domestic industry. Key provisions — including subsidies for shipyard investment and expanded requirements for government cargo to be carried on US-flagged vessels — are included in the House version of the National Defense Authorization Act. The NDAA is expected to be finalized by year-end, making it a key question whether those provisions survive the final bill and how broadly foreign construction of naval vessels will be permitted.

In semiconductors, a factory investment tax credit supported by both parties is set to expire at the end of this year, and its renewal is drawing close attention. Some regulatory discussion around data center power and water usage may emerge, but both parties back transmission grid expansion — a positive factor for demand in power equipment.

However, factory construction and grid projects are also subject to state-level tax incentives and permitting. The elections changed the governing party in the governor's office in Georgia and Texas — two states with significant South Korean corporate investment — which could alter local investment conditions.

"Even with Democrats controlling both chambers, the tariff trajectory will hold — but in bipartisan areas like shipbuilding, semiconductors and power, real opportunities can emerge for Korean companies entering the US market," said Lee Geum-ha, head of KOTRA's North America regional headquarters. "We will closely monitor legislative developments on the ground and actively support Korean companies so they do not miss these opportunities."


eyre@heraldcorp.com