"Just Watch the Democratic Party"... US 'Red Sweep' Raises Concerns Over Soaring Fiscal Deficit

Republicans Secure Majority in House Seats
Trump's Pledges May Be Passed Solely by Republicans
US Fiscal Deficit Likely to Surge Further

The Republican Party, having won the U.S. presidential election, secured majority status in the House of Representatives following the Senate, confirming a 'Red Sweep' that grants them control over both the executive and legislative branches. This allows the Republican Party to unilaterally implement various campaign promises of President-elect Donald Trump, raising concerns that the U.S. fiscal deficit will surge even further.

According to foreign media including ABC on the 13th (local time), while vote counting for the House of Representatives election, which elects a total of 435 members, is ongoing in some districts, the Republican Party had secured a majority of 218 seats as of 6 p.m. Eastern Time that day. The Democratic Party managed to secure only 208 seats. Earlier, the Republicans also became the majority in the Senate by winning 52 out of 100 seats, surpassing the Democrats' 47 seats.

Thus, the Republican Party now controls the White House as well as both chambers of Congress. The most recent occurrence of a 'Red Sweep' in the U.S. was during President George W. Bush’s administration from 2003 to 2007.

With allies secured in both chambers, President-elect Trump is expected to easily push forward various promised policies. According to ABC, the top legislative priority after Trump’s inauguration will be extending the ‘Tax Cuts and Jobs Act (TCJA)’ set to expire next year. Enacted during Trump’s first term in 2017, this law primarily lowered the corporate tax rate from 35% to 21%. Trump pledged during his candidacy to reduce the corporate tax rate further to 15%. Additionally, key campaign promises such as building a border wall, deporting illegal immigrants, and reforming the Affordable Care Act (ACA, also known as Obamacare) are expected to proceed without major obstacles.

The problem lies in the astronomical increase in the U.S. fiscal deficit. Even excluding the COVID-19 pandemic period, the U.S. fiscal deficit has surged to its highest levels. For the 2024 fiscal year (October 2023 to September 2024), the U.S. fiscal deficit is projected to reach $1.833 trillion, an 8% increase from the previous year and the largest except for 2020 and 2021. The October deficit alone was $257 billion, a 287% increase compared to $67 billion in the same period last year. The bipartisan organization 'Committee for a Responsible Federal Budget (CRFB)' analyzed that if all of Trump’s large-scale fiscal spending plans are realized, the deficit could reach $7.5 trillion (approximately 1,415 trillion KRW) over the next decade.

There are also expectations that the Republican Party will significantly raise the constitutionally mandated debt ceiling. Last June, the two parties fiercely clashed over raising the debt ceiling ($31.4 trillion), but from the next session, the Republicans will be able to push it through unilaterally. Foreign media reported that "raising the debt ceiling can be approved with a majority vote in the House." The debt ceiling has been temporarily suspended until January 2025, and as of August, the national debt has surpassed $35 trillion.

U.S. Treasury yields have been rising daily amid concerns over the U.S. fiscal situation. The 10-year U.S. Treasury yield, a global bond benchmark, moved up 2 basis points (1 bp = 0.01%) from the previous trading day to around 4.45%, the highest since July. Global asset management firm T. Rowe Price predicts that Treasury yields could reach 5% within six months due to Trump’s election. This has led to speculation that the Federal Reserve (Fed) may need to maintain higher benchmark interest rates going forward.