What a Return to Divided Government Means for Businesses

A new era of divided government has begun in Washington as Republicans regained control of the House in the November 2022 midterm elections. Democrats continue to hold the Senate after flipping a seat in Pennsylvania and defending a seat in Georgia.

Companies and organizations will need to recalibrate their strategies for engaging both the Biden Administration and Congress over the next two years, especially knowing that both Democrats and Republicans will approach everything they do with a watchful eye on the 2024 presidential election cycle. President Biden has yet to officially announce whether he will seek reelection, but former President Trump has already launched his campaign. While it remains uncertain whether Biden or Trump will ultimately be their party’s respective nominees, both will loom large over the process and impact how Congress does its job over the next two years.

Looking Ahead

As the 118^th Congress kicks off, Democrats will seek to bolster President Biden’s accomplishments in his first two years in office and build on his legislative achievements, such as the $1.2 trillion infrastructure bill aimed at rebuilding the nation’s roads, bridges and rails, as well as expanding access to clean drinking water and high-speed internet to underserved parts of the country. In the Senate, expect Democrats to exercise their new subpoena authority to call on companies and organizations to appear before Senate committees. These probes will serve as a political counter to the Republican investigations in the House while also providing instructions and political cover to regulatory bodies that are looking to advance policy initiatives through executive orders. Other Senate Democrat priorities will include approving judges and other Biden appointees.

Meanwhile, Republicans now have a platform to challenge the Biden Administration at every turn and force votes on hot-button social issues, such as critical race theory, immigration reform and climate change to appease their base—this will be critically important going into 2024, especially with the tenuous hold they have in the House. When Republicans are not consumed by investigations (the origins of the COVID-19 pandemic; competitiveness with China; the withdrawal from Afghanistan; the Biden Administration, etc.), expect them to double down on combating threats from China—including the United States’ economic dependence on China, supporting Taiwan militarily and economically, supporting other congressional committee efforts on export controls relating to emerging and foundational technologies, and investigating Chinese companies doing business in the United States.

With a divided government, President Biden will have fewer openings to advance his legislative priorities. his Administration will lean heavily into executive orders. In foreign policy, President Biden is likely to continue focusing on support for Ukraine, addressing climate change, bolstering alliances, and working with partners and allies to strengthen supply chains. He has also committed to visiting Africa in 2023 to enhance U.S. engagement in the region and counter China’s growing influence.

How to Make Progress 

Navigating Washington during the next two years will be tricky for many companies and organizations amid growing polarization and the competing interests of a divided government. Lean too far one way and risk upsetting your customers. Veer too far the other way and risk being called before Congress to explain your position.

However, this year will not be without opportunity.

• Participate in the rule-making process underway for the Infrastructure Investment and Jobs Act, Inflation Reduction Act (IRA) and CHIPS and Science Act. Each of these pieces of legislation provide billions in tax credits and subsidies to the private sector with the aim of rebuilding the nation’s infrastructure, restoring critical supply chains and spurring investment in the energy transition. Monitoring executive branch rule making and comment periods is critical for companies looking to shape how these funds will ultimately be used and dispersed.
• Prepare now to weigh in on the must-pass pieces of legislation to be considered in the 118th Congress, including the Farm Bill and the reauthorization of the Federal Aviation Administration. Other pieces of legislation facing expiring deadlines that will drive deal-making include the debt limit and policy proposals left out of the year-end omnibus. Businesses and organizations must be prepared to act quickly if any of these legislative vehicles gain traction, as bipartisan agreements will be few and far between given the extremely tight margins in both the House and Senate.
• Congressional earmarks, rebranded as Community Project Funding, appear here to stay and are something every eligible organization should look to pursue through their local member of Congress.