Trump's Grip on Taiwan Arms Sales Faces Congress

The Trump administration has delayed a $14 billion weapons package for Taiwan, and the Democrats’ sweeping victory giving them control of Congress could put that decision under pressure. Taiwan is a U.S.-backed democratic island claimed by Beijing; Washington is Taipei’s most important security backer and has sold it billions of dollars’ worth of arms for defense against a potential Chinese attack.

The result puts Congress, the president and Beijing around the machinery of decisions with consequences for Taiwan and for consumers and businesses exposed to a U.S.-China trade fight. Analysts described the election as both an opportunity and a challenge for China, the United States’ top rival.

Who Controls the Levers

Democratic control of both houses could let lawmakers limit President Donald Trump's use of tariffs on Chinese products. A U.S.-China trade-war truce is set to expire in January. Wu Xinbo, dean at the Institute of International Studies at Fudan University in Shanghai, said Trump “will be less able to leverage a tariff card in negotiations with China.”

Drew Thompson, a senior fellow at the S. Rajaratnam School of International Studies at Singapore's Nanyang Technological University, said Congress will “take every opportunity to thwart (Mr. Trump's policies) over the next two years.” He also said Democrats would have to weigh the popularity of tariffs among unions, blue-collar workers and small businesses, which he described as a historic base constituency for the party.

Patricia Kim, a foreign policy fellow at the Brookings Institution in Washington, said Congress would be “less inclined to support measures that would sharply escalate pressure on China if doing so risks raising costs for American consumers and businesses or increasing the likelihood of conflict.” Those costs are part of the calculation, even as decisions over tariffs and arms sales remain in the hands of political institutions and national leaders.

Trump questioned the U.S. position on Taiwan in May, saying arms sales could become a bargaining chip in talks with China. He has so far resisted pressure from Democrats and some Republican lawmakers to approve the delayed package.

Arms, Vetoes and the Taiwan Question

Neil Shearing, group chief economist at Capital Economics, wrote that China could use the remaining two years of Trump's presidency to increase pressure on Taiwan, particularly if Beijing judges Washington distracted or Trump willing to agree not to intervene. Trump recently praised his “great friendship” with China's President Xi Jinping.

Wu said a Democrat-controlled Congress “may force Trump to resume arms sales to Taiwan next year,” adding, “If that happens, that will also undermine the stability of U.S.-China relationship.” Steve Tsang, director of the SOAS China Institute, said renewed congressional support for Taipei could give Beijing “a stronger incentive for (Beijing) to play it safer with Taiwan.”

Congress could pass bills requiring Trump to approve an arms sale, Thompson said. But the president could veto the bill “or simply ignore it.” The legislative route has limits built into it: lawmakers can act, while the president retains ways to block or disregard their action.

Analysts said Beijing was unlikely to change its approach to working with Trump despite his political weakening. Kim said Beijing was likely to keep cultivating him through high-profile, leader-to-leader engagement with Xi Jinping, viewing it as the least costly way to manage relations with Washington. “Neither Beijing nor Washington appears to expect or seek a fundamental improvement in bilateral relations,” she added. Tsang said Trump's lame-duck status “will be used by the Chinese to put more pressure on him,” but Beijing was “calculating” and “would not want to push too hard and trigger Trump behaving totally irresponsibly.”

Markets Celebrate Gridlock

Asian stocks advanced after the election, tracking gains in U.S. equities, while oil prices fell. Japan and Australia benchmark indexes rose, pushing the MSCI Asia Pacific Index up 0.3%. The S&P 500 Index gained 1.6%, its biggest increase in three months, and the tech-heavy Nasdaq 100 rose 0.9%. South Korea's Kospi Index fell 2.7%, with investors concerned about future data-center development and losses in U.S. chip stocks.

Markets also reacted to speculation that the conflict with Iran would end sooner. Brent crude fell more than 8% to below $95 a barrel on Wednesday after Senate Minority Leader Chuck Schumer pledged to end the Middle East war. U.S. oil held its losses early Thursday. Treasuries extended Wednesday's gains as investors anticipated lower oil prices would curb inflation; investors also reduced bets on Federal Reserve interest-rate increases over the coming year. Bloomberg's dollar gauge fell for a second day, and the dollar weakened the most in two months.

Louis Navellier, chief investment officer at Navellier & Associates, said, “The stock market is now celebrating congressional gridlock, President Trump's willingness to work with the new Congress, and the fact that the Trump administration may not immediately attack Iran now that new negotiations are anticipated.” Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, said U.S. stocks were set for gains into year-end because the election removed a source of uncertainty, earnings remained strong and investor positioning left room for renewed buying.

Keith Lerner at Truist Advisory Services Inc. said stocks had been higher one year after every midterm vote since 1946, including all four cases in which both the House and Senate switched to the party opposing the president. “That supports our base case of giving the bull market the benefit of the doubt, but earnings, the economy, interest rates, valuations, and market trends remain more important to our view,” he said. Ulrike Hoffmann-Burchardi at UBS Global Wealth Management said greater congressional oversight would not necessarily derail the AI investment cycle because underlying demand remained solid. Ryan Detrick at Carson Group said, “Yes, potential worries over AI regulation are high, but the reality is markets hate uncertainty and now with the election out of the way, we are seeing buyers step in across the board.”

The Hindu's Nov. 5 morning digest reported that Trump said on Wednesday, Nov. 4, that the Iran war had been worth it despite acknowledging its role in Republican losses and loss of control of Congress. “The Iran thing we had to do, and we continue to do it,” he told reporters. The digest also reported that J.D. Vance publicly broke from Trump's defense of the war after the party's losses, as the Vice President faced questions about his political ambitions.