Insights

The Democratic Party's capture of both chambers in the 2026 US midterm elections puts the Trump administration into divided government. In this Business Focus, the Samjong KPMG Economic Research Institute examines how the shift in congressional control is likely to reshape the four main levers of US policy, tariffs, taxation, regulation and federal spending, and how those changes could feed through to the Korean economy and its key industries. On the count as of the morning of 5 November 2026 (KST), Democrats held 54 Senate seats and 237 House seats.

Congressional dependence determines what changes. The report sorts the four policy areas by how much they rely on Congress. Tariffs rely on it least. Since the 20 February 2026 ruling that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unlawful, the tariff regime has been rebuilt around Sections 301, 232 and 338 of US trade law. Because every one of those authorities sits with the president, the basic framework is likely to hold. The average US effective tariff rate rose from 2.4% in 2024 to 16.0% before the ruling and stood at 11.1% after the Section 122 tariffs expired on 24 July 2026.

Taxation and federal spending, by contrast, depend heavily on Congress. The permanent provisions of the One Big Beautiful Bill Act (OBBBA) are expected to remain, but further tax cuts look constrained, and the USD 350bn defence reconciliation package has a low probability of passing. The upshot is a split: policy driven by executive order is likely to continue, while anything requiring legislation loses speed and scope. The report expects policy risk to cluster in the first half of 2027, when the 11 December stopgap funding expiry, the debt ceiling deadline in spring 2027 and the Treasury's OBBBA implementing regulations all converge.

Semiconductors hold up the Korean economy, but sector divergence is widening. Korea's cumulative exports for January to September 2026 reached a record USD 814.5bn, with semiconductors accounting for USD 340.3bn, or 41.8% of the total. The won strengthened to KRW 1,337.7 per dollar on 28 October, an appreciation of roughly 15% from 2 July. The Bank of Korea has raised its growth forecasts for 2026 and 2027 to 3.9% and 3.3%, and held its base rate at 3.00% in October.

The report expects the chip upcycle to keep driving growth, but it sees tariffs and the OBBBA implementing regulations widening the gap between sectors and companies. It identifies a prolonged government shutdown, the debt-ceiling X-date and a slowdown in AI investment as the main downside risks. If tighter AI regulation under a Democratic Congress and higher data-centre power costs slow AI capital expenditure, an export base that leans this heavily on semiconductors could come under pressure.

Across industries, the common thread is pressure to localise. In semiconductors, export burdens and pressure to build in the US are rising, while AI infrastructure investment lifts demand for advanced chips inside the US. In autos, a revived Democratic push to revise the USMCA could tighten labour value content rules, which require 40–45% of production in locations paying at least USD 16 an hour, and raise costs for Korean suppliers with Mexican plants. In steel, the high Section 232 tariffs continue; US imports of finished steel fell 18.5% over the latest twelve months, but LNG, nuclear and grid investment is creating selective demand for line pipe, heavy plate and electrical steel.

In energy, further support for fossil fuels is likely to be constrained, while debate over restoring renewable tax credits could improve the investment case for solar, wind and battery energy storage. In shipbuilding, containing China and strengthening the US Navy remain bipartisan priorities, steering orders toward allied yards, but the requirement to build in the US and uncertainty over federal funding could delay returns on US investment. The report summarises the US policy environment as "B.L.U.E" (Budget Limit, Limited Rate Relief, Unresolved Risk, Event Window) and the impact on Korea as "W.A.V.E" (Won Volatility, AI Cycle, Value of Export, Edge Divergence).

M&A Implications. First, cross-border acquisitions aimed at securing a US operating base are likely to increase, with steel processing, ship maintenance, repair and overhaul (MRO) yards and back-end semiconductor assets among the candidates. Given the uncertainty over tax credits and subsidies, we would expect more deals to carry contingent consideration tied to whether incentives are confirmed. Second, as auto and battery companies restructure their Mexican footprint and supply chains, divestments of some assets and North American materials joint ventures could emerge side by side; the final stringency of the Foreign Entity of Concern (FEOC) rules is likely to act as the catalyst. Third, the debate over restoring renewable tax credits could become a key valuation variable for solar, wind and storage project assets. Fourth, with the major policy events concentrated in the first half of 2027, transactions scheduled to close in that window may need closer attention to timetables and material adverse change provisions.