Democrats win Congress, but tariff risks remain

The Democrats’ victory in both chambers of the US Congress has changed the political balance in Washington, but it has not removed the tariffs, trade restrictions and financing pressures facing companies operating across American supply chains.

For banks, factoring companies, trade credit insurers and corporate borrowers, the distinction is significant. Greater congressional scrutiny of President Donald Trump’s trade policies could eventually bring more predictable trading conditions. Yet the legal powers available to the White House mean that tariff uncertainty may remain a substantial influence on working-capital requirements throughout 2027.

The midterm elections on 3 November delivered Democratic control of both the House of Representatives and the Senate, ending Republican control of Congress. The new majorities will take office in January, giving Democrats greater influence over legislative priorities, investigations and trade-policy oversight.

However, a change in congressional leadership is not equivalent to a reversal of existing trade measures.

Why the election may not deliver tariff relief

The central obstacle is the extensive authority Congress has already delegated to the executive branch.

Although the US Constitution assigns tariff-making powers to Congress, successive trade laws have authorised presidents to impose duties under specific circumstances. These include Section 232 of the Trade Expansion Act of 1962, covering national security, and Section 301 of the Trade Act of 1974, addressing unfair foreign trade practices.

In February, the Supreme Court ruled that the International Emergency Economic Powers Act did not authorise President Trump to impose tariffs. The decision removed an important legal basis for some of his earlier measures, but it did not invalidate tariffs imposed under other statutory authorities.

Those distinctions remain important after the election.

Democrats will have greater authority to investigate tariff exemptions, demand information from administration officials and introduce legislation restricting presidential trade powers. However, most contested legislation would still need sufficient Senate support to overcome procedural obstacles and, if opposed by Trump, a two-thirds majority in both chambers to override a presidential veto.

Trade-policy analysts at the Hinrich Foundation have consequently cautioned that the congressional result is unlikely to produce a sweeping reversal of the administration’s trade agenda.

Nor is there a uniform political position on tariffs. Some Democratic lawmakers favour reducing trade barriers, while others support targeted protection for domestic industries.

For businesses financing international trade, the practical consequence is that greater political opposition to tariffs does not necessarily translate into lower import costs.

The working-capital burden remains

The financial effects of tariffs emerge long before a company’s final sale to its customer.

An importer must finance the purchase of goods, international transportation and applicable customs duties, often before receiving payment from the businesses purchasing those products.

Higher tariffs increase the amount of capital committed to this cycle.

For illustration, an additional 10 percentage points of duty on a US$10m shipment would create US$1m of additional customs costs, assuming the full shipment were subject to the increase without exemptions. That funding requirement could arise well before the importer collects the corresponding sales proceeds.

The pressure is particularly acute where companies cannot immediately pass higher costs to customers or are bound by existing supply contracts.

Research published by the Federal Reserve Bank of New York in July found that approximately 80% of surveyed goods and retail businesses facing higher imported-input costs had passed at least some of those increases to customers. Around 60% had absorbed at least some of the additional costs themselves.

The findings related to tariff pressures experienced during 2025, rather than the midterm election. Nevertheless, they illustrate how businesses can face both higher funding requirements and weaker margins.

More recent evidence suggests that the pressures have persisted.

The Federal Reserve’s October 2026 Beige Book reported continued cost increases associated with tariffs, energy and insurance. In the New York district, manufacturers described higher input costs, supply-chain disruption and difficulties planning investment because of uncertainty over trade policy.

For working-capital lenders, the resulting challenge is not simply that borrowers may need more money. It is that the timing, value and recoverability of the assets supporting their facilities may become less predictable.

Factoring and supply chain finance face different pressures

The distinction between financing an invoice and financing the goods that generate it becomes especially important when import costs rise.

Traditional factoring and invoice discounting generally provide liquidity against qualifying receivables after goods or services have been supplied and payment obligations established.

They do not ordinarily resolve the earlier requirement to fund customs duties, production and inventory before an invoice exists.

An importer facing higher upfront costs may therefore need additional inventory finance, a revolving working-capital facility or another form of pre-shipment funding, rather than simply increasing its factoring arrangements.

Asset-based lenders face a related difficulty.

Higher inventory costs can increase the accounting value of stock, but that does not automatically translate into greater lending availability. Lenders must still consider eligibility, liquidation values, advance rates, stock turnover and concentration risk.

If tariff uncertainty causes customers to postpone orders, inventory could remain unsold for longer, increasing the period during which borrowing is required.

Supply chain finance arrangements may encounter a different set of pressures.

Conventional approved-payables programmes release liquidity against invoices approved by large corporate buyers. They can accelerate supplier payments, but do not necessarily address the earlier financing gap created when suppliers must absorb higher materials, production or import costs.

That could strengthen the commercial case for financing structures operating earlier in the supply chain, including inventory-backed arrangements and supplier prepayments.

However, greater demand for such products is not guaranteed. Any expansion would depend on the financial strength of buyers and suppliers, the availability of suitable collateral and funders’ willingness to assume additional risk.

Trade credit insurers and receivables purchasers must also consider whether higher costs are weakening debtor profitability or creating greater payment delays.

A tariff-related increase in invoice values is not necessarily an improvement in the quality of the underlying receivable.

North American supply chains face an important test

The future of the United States-Mexico-Canada Agreement adds another dimension to the post-election outlook.

In October, the Office of the United States Trade Representative opened a consultation process ahead of the agreement’s 2027 joint review, with submissions due by 12 January 2027.

That deadline falls shortly after the incoming Congress assumes office.

The agreement is particularly important for automotive, machinery, agricultural and manufacturing supply chains operating across the three countries.

Businesses involved in these industries frequently depend on cross-border movement of components, intermediate products and finished goods. Changes to tariffs, preferential treatment or rules of origin can alter sourcing costs and financing requirements across several stages of production.

The outcome of the review remains uncertain. The election could increase congressional pressure for more stable North American trading arrangements, but it does not itself amend the agreement or remove existing trade restrictions.

The wider international picture is similarly unsettled.

In March, the US Trade Representative initiated Section 301 investigations into structural excess capacity involving 16 trading partners, including China, the European Union, Mexico, Japan and India.

Those investigations are not themselves new tariffs. However, their eventual findings could influence future trade measures affecting manufacturers, exporters and importers across several major markets.

For cross-border receivables financiers, the consequences will depend on the measures actually adopted, the products affected and the ability of customers to maintain their payment obligations.

What financiers should watch in 2027

Three developments will help determine whether the election changes the commercial environment for working-capital finance.

The first is whether congressional oversight leads to greater predictability in tariff decisions, exemptions and enforcement. Even without substantial tariff reductions, more transparent rules could help businesses forecast cash requirements and financing needs.

The second is the outcome of North American trade negotiations and outstanding US trade investigations. Material changes could affect supplier selection, inventory levels, borrowing-base values and cross-border credit exposure.

The third is how businesses respond to continuing cost pressures. Companies may seek longer payment terms, additional inventory funding or greater flexibility in receivables facilities, while lenders may respond by tightening eligibility criteria or reassessing debtor limits.

None of these outcomes follows automatically from the election.

The Democratic congressional victory changes the political framework within which American trade policy will be challenged and scrutinised. It does not immediately change the cash businesses must commit to imported goods or the risks financiers face when advancing against receivables and inventory.

For the international working-capital market, the defining question is therefore not simply who controls Congress, but whether the new political balance produces measurable changes in trade costs, payment behaviour and financing risk.

Until those changes become effective, the financing consequences of US tariffs remain firmly in place.