The midterms could lead to less aggressive tariffs, BofA says

Investing.com -- Upcoming U.S. midterm elections could reshape the Administration’s approach to both foreign policy and trade, according to a new note from Bank of America.

Analyst Claudio Irigoyen told clients in a note that the political calendar is becoming an increasingly important variable in Washington’s decisions, particularly as conflict-related risks threaten to push gas prices higher.

BofA believes that “the longer the war continues, the closer the midterms, and the more likely it becomes that higher gas prices have an impact.”

That could influence the U.S. government’s approach to the conflict, though the bank also noted that Iran may similarly adjust its strategy, making “a quick resolution unclear.”

While BofA’s base case still assumes a resolution “in the next few weeks,” it warned that markets may be “underpricing risks of a more extended conflict.”

On trade, BofA noted that the elections may help keep tariff policy in check. With Section 122 tariffs expiring in July and new measures expected under Sections 232 and 301, Irigoyen wrote, “we think the midterms could also lead to less aggressive tariffs, with the observed drop in tariff revenues likely to extend.”

Following the ruling on IEEPA, BofA expects effective tariff levels to settle in the 6-8% range, though it flagged potential upside risks tied to recent tensions with the EU.

The note also pointed to upcoming factory orders and comments from a Federal Reserve official as near-term catalysts for markets.

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