Economist: US Election Outcome Moderately Positive for the Baltics, but Risks Remain

The Democratic victory in the US Congressional midterm elections could reduce long-term security and economic risks for Europe and the Baltic states, but no major change in US trade policy is expected. This was stated to the news agency LETA by Kārlis Purgailis, chief economist at Latvia's Citadele bank. Democrats have won a majority in both the House of Representatives and the Senate.

Political gridlock rather than a change of course

According to Purgailis, the new Congress will limit President Donald Trump's ability to carry out part of his agenda. Congress controls the budget and can oversee the government, but without a two-thirds majority it cannot override a presidential veto. A political stalemate is therefore likely, rather than a sharp shift in direction.

Fuel prices and Iran

The biggest risk for the Baltics in the coming months is a possible rise in oil and fuel prices if the military conflict in Iran escalates. From January the new Congress will be able to restrict funding for military operations, but until it begins work on 3 January 2027 the president retains broad powers. Costlier fuel would add to inflation, particularly affecting transport, logistics and agricultural companies. The result could also lessen the risk of the US restricting diesel exports, although the final decision stays with the president.

Tariffs and exports

Most EU goods still face tariffs of about 10%, while cars, car parts and medicines face 15%. There is also a risk of an additional 25% tariff in connection with EU digital taxes. Roughly 2.5% of Latvia's goods exports, 3% of Estonia's and just under 5% of Lithuania's go to the US. The indirect effect through customers in Germany and Scandinavia matters more.

Security outlook

Purgailis expects the Democratic majority to favour faster military aid to Ukraine and to scrutinise any decisions to reduce the number of US troops in Europe. This is important because it is unclear whether US troop rotations in Lithuania and Estonia will continue. The economist adds that Europe must keep strengthening its own defence, as the composition of Congress may change again in two years.