US Midterms Put Asia Pacific Trade and Security Policies in Focus

Governments and financial markets across the Asia-Pacific are monitoring Tuesday's US midterm elections as congressional control could influence economic uncertainty, trade relations and regional security during President Donald Trump's remaining term. The outcome comes amid the continuing US-Israel war on Iran, disrupted energy supplies, American trade restrictions and growing competition between Washington and Beijing.

Analysts expect limited changes to major US policies even if Democrats gain control of Congress. However, election results could influence financial markets through US Treasury yields, the dollar, investor sentiment and expectations for future government spending.

Al Jazeera reported that the Asia-Pacific has experienced substantial economic pressure from the conflict with Iran. Before hostilities began in January, the region received most of the Gulf oil and gas transported through the Strait of Hormuz. Iran's closure of the strategic shipping route following US and Israeli strikes disrupted supplies.

The Philippines, which sources more than 90 percent of its crude oil imports from the Gulf, has maintained a national energy emergency since March. According to Singapore's ISEAS-Yusof Ishak Institute, Cambodia, Laos, Myanmar and East Timor have faced pressure on foreign exchange reserves from rising fuel costs. Indonesia, Malaysia, Thailand and Vietnam have also spent heavily on fuel subsidies.

Trade specialist Steven Okun, chief executive of Singapore-based APAC Advisors, described the election as an important political event for the region.

"Of course, everybody is watching," said Steven Okun, chief executive of APAC Advisors.

He also characterized the political contest as "great political theatre."

Okun argued that congressional changes would have limited influence over Washington's military approach toward Iran because Trump could veto legislation restricting military operations. Overriding a presidential veto would require a two-thirds majority in both chambers.

"With Iran, I don’t see [a Democrat-controlled Congress] having much change at all, other than the fact that the war will be investigated and there will be oversight hearings," Okun said.

He identified possible congressional scrutiny of the defense leadership as another development but questioned whether it would substantially alter the conflict.

"We might even see an impeachment of the secretary of defence, but it doesn’t change the overall impact of the war," Okun said.

The trade outlook also remains uncertain. Trump's earlier reciprocal tariffs affected approximately 90 countries, with rates ranging from 10 percent to 50 percent. Cambodia faced a 49 percent tariff, Laos 48 percent, Vietnam 46 percent and Myanmar 45 percent.

After the Supreme Court struck down those measures in February, the administration introduced another round of restrictions in July, imposing tariffs of 10 percent and 12.5 percent on goods from 60 trading partners over allegations involving imports produced with forced labor. The affected Asian economies included China, Japan, South Korea and seven Southeast Asian countries.

Okun said congressional control would not necessarily change the administration's trade direction.

"Congress cannot change that … Tariffs don’t change. The war doesn’t change," Okun said.

Stephen Olson, a visiting fellow at the ISEAS-Yusof Ishak Institute, identified a possible opening for trade policy adjustments if Republicans suffer substantial electoral losses. He argued that such a result could strengthen lawmakers favoring freer trade.

Olson described a potential electoral outcome as a "strong rebuke of ‘Trumpism’" that could encourage Republicans who had been "intimidated into standing down during the Trump presidency" to challenge the administration's trade restrictions.

He characterized the possibility as "a glimmer of hope" for Southeast Asian exporters and said congressional negotiations could provide "a modicum of relief" through exemptions and special tariff arrangements. However, he expected major changes to US trade policy to remain unlikely before the 2028 presidential election.

Joshua Kurlantzick, a senior fellow for Southeast Asia and South Asia at the Council on Foreign Relations, said regional governments wanted broader changes in Washington's economic and security policies.

"I think nearly all of Asia would like to see enormous changes, across many domains, during the rest of Trump’s term," Kurlantzick said.

He added that regional expectations remained limited despite those demands.

"But I think much of the region believes this will not happen," Kurlantzick said.

Kurlantzick identified "more stability" in trade policy as an important regional priority. Governments also wanted "more stable in security guarantees from the US," alongside a "more clear, obvious US presence" in the South China Sea and Taiwan Strait.

He said companies operating across Asia would monitor whether Republican lawmakers became more willing to challenge Trump alongside Democrats on commercial issues.

Kurlantzick identified "greater GOP willingness in Congress to stand up to Trump, along with Democrats, on issues important to companies in Asia," as a potential development, particularly concerning arms sales and "overall economic unpredictability."

China policy represents another area where congressional action is expected. Okun said lawmakers from either party would support additional restrictions on China's access to sensitive technology. Proposed measures include the Remote Access Security Act and the Chip Security Act, which would extend export controls and require verification of advanced artificial intelligence chips' authorized locations.

Meanwhile, financial markets are assessing the possible effects of different election outcomes. MUFG Research assigned a 50 percent probability to divided government and 45 percent to a Democratic sweep, describing divided government as the more market-friendly scenario because legislative gridlock could limit major fiscal and regulatory changes.

A Democratic victory in both chambers could modestly support Asian currencies by reducing expectations for additional US fiscal expansion, potentially lowering Treasury yields and weakening the dollar. A split Congress could produce a smaller version of that effect, while the broader impact is expected to remain limited because presidential executive authority over trade policy is substantial.

US economic indicators have also influenced market expectations. September job openings increased to 7.52 million from 7.19 million, exceeding the 7.16 million consensus forecast. The US 10-year Treasury yield climbed 6 basis points to 4.96 percent as investors increased expectations of further Federal Reserve tightening.

Oil markets remained volatile, with Brent crude trading around $104 per barrel amid conflicting reports about US-Iran peace negotiations.

In China, the People's Bank of China raised its foreign exchange reserve requirement ratio to 6 percent from 4 percent, effective November 15, after the dollar-yuan exchange rate approached 6.65. MUFG estimated that the measure would lock up approximately $24 billion in foreign exchange liquidity and slow the yuan's appreciation rather than reverse its strengthening trend.

MUFG maintained its USD/CNY forecasts at 6.65 by the end of 2026 and 6.50 by the third quarter of 2027.

Vietnam recorded a trade surplus of $7.31 billion in October, up from $1.27 billion in September. Exports increased 51.4 percent year over year, compared with 43.1 percent growth in imports, while inflation remained broadly stable at 5.09 percent. The stronger trade balance supports the Vietnamese dong, although the country's expanding trade surplus with the United States leaves it exposed to further trade-policy risks.

South Korea's consumer inflation slowed to 2.8 percent in October from 2.9 percent in September, while core inflation remained at 2.8 percent and exceeded market expectations. MUFG noted that persistent underlying price pressures, strong economic growth and semiconductor exports could maintain expectations of further Bank of Korea tightening, providing support for the won alongside the country's growing trade surplus.