Chartbook 483 After the midterms: How does America come down from Trump's “speedball economy”?
Adam Tooze argues that the Democrats' 2026 midterm landslide was a voter rejection of what he calls Trump's speedball economy: haphazard tariffs, violent ICE deportations, corporate favoritism and corruption, all against a backdrop of cost-of-living anger. AI data centers were directly on the ballot and suffered a devastating reversal, with restriction leading 29 to 1 across 30 ballot measures, a Democrat winning the Texas governorship, and 60 GW of data-center capacity and $200 billion of investment at stake in a state hosting 25% of data centers coming online by 2030. On fiscal politics, Treasuries rallied on the result, with 10-year yields down four basis points to 4.92%, as markets priced less fiscal impulse from a divided government. Tooze warns, however, that coming down from the speedball may not raise purchasing power: a weaker dollar and an AI slowdown could close the K-shaped economy and help housing and trade-exposed sectors, but devaluation also makes imports more expensive. He adds that economic nationalism is not just a MAGA hobbyhorse, with deep roots in the labour movement and a hawkish Democratic mainstream on China, and that the new majority inherits a weaponized Strait of Hormuz and a regional quagmire it must find an off-ramp from.
Highlights
The dramatic landslide for the Democrats in the 2026 midterms confirms the common sense amongst Trump's critics that his economic policies made no sense in political terms.
If global inflows into AI equities are a key part of the balance of payments and these midterm results promise a serious pushback on the US AI boom, then we should expect a weaker dollar.
Coming off the speedball high may be exactly what America needs, but in aggregate it does not raise purchasing power.
Contrarian Viewpoints
- The Democratic stance on trade is far from settled: the party is split on China, its mainstream has been resolutely hawkish, and selling freer trade as a cost-of-living fix may prove difficult.
- There is a tension between market pricing of less fiscal impulse and the claim that voters chose big government; reconciling the two requires redistributive taxation, non-fiscal levers, or central-bank containment of the deficit-bond loop.
- A weaker dollar helps exporters and housing but worsens the terms of trade, so the distributional gains of closing the K-shaped economy must offset higher import costs.
Investment Implications
- Position for a softer dollar and lower yields on reduced fiscal impulse: favor duration in Treasuries and non-US dollar assets over dollar strength trades.
- Exercise caution on AI data-center exposed names, especially Texas-heavy builders and infrastructure plays, as ballot measures and political pushback slow the buildout.