US Midterm Elections Could Reshape AI Regulation and Global Markets

Americans go to the polls on Tuesday, November 3, in midterm elections that will decide control of Congress for the final two years of President Donald Trump's term. For the first time, artificial intelligence is one of the forces shaping the contest, and the result could influence how the world's most important AI industry is regulated, as well as the direction of global markets.

BNY Investments has described the vote as "the first election shaped by the AI backlash, or 'techlash'." Concern about the electricity and water demands of data centres, fears about AI's effect on jobs and an unprecedented wave of spending by AI-aligned political groups have turned the technology into a campaign issue in a way that would have been hard to imagine even two years ago.

"The midterm election could provide an early read on the political appetite for greater AI regulation in coming years," said Gil Fortgang, Washington associate analyst at T. Rowe Price.

The money behind AI politics

The AI industry has become one of the most significant new sources of political money in the United States. Two rival networks of super PACs have dominated spending.

Leading the Future, launched in August 2025, is backed by donors including OpenAI president Greg Brockman, venture capitalist Marc Andreessen and Ben Horowitz, and favours a lighter approach to AI regulation. It has $125 million from its donors, according to Scripps News reporting, and operates affiliates that back candidates in both parties: Think Big for Democrats and American Mission for Republicans.

Public First, launched months later to counter it, supports guardrails and transparency for AI. Its political arm, Public First Action, has raised $80 million, about half of it from Anthropic, according to Scripps News. Anthropic chief executive Dario Amodei also personally gave $1 million, according to The Intercept.

The two networks spent $50.7 million in party primaries, according to an analysis published by The Intercept on October 29. A New York Times tally at the end of September put spending by OpenAI- and Anthropic-aligned groups at $55.7 million across 95 ads, most of which did not mention AI or data centres at all.

The Bores test case

The most expensive single battle came in New York's 12th congressional district, where $21.3 million was spent for or against Alex Bores, a state assembly member who wrote a New York AI safety bill, according to The Intercept. Bores lost the June Democratic primary to Micah Lasher after heavy spending against him by Leading the Future's Democratic affiliate, and later blamed AI "oligarchs" for his defeat.

The race sent a clear signal to politicians about the cost of championing strict AI rules, although critics argue it could backfire. "This is a really small group of people that wants to make a very big splash in the election," said Saurav Ghosh of the Campaign Legal Center, according to Scripps News.

A retreat from the battleground

While AI money flooded the primaries, it has been far less visible in the general election. Leading the Future had spent $7.4 million on general election races as of October 26, with $34 million in cash on hand, while Public First had spent $1.1 million, according to The Intercept. Only about 5% of the networks' direct spending went to contested general election races, the publication found.

One reason may be polling that suggests AI money can be a liability. A Data for Progress survey of more than 3,000 likely voters in Iowa, Michigan and Ohio, commissioned by the group Guardrails Alliance, found that about three-quarters were less likely to support a candidate backed by an AI super PAC. Rick Claypool of the advocacy group Public Citizen said the industry had "underestimated how much the public despises the data center buildout."

Data centres on the ballot

The construction boom in AI data centres has become a local political issue across the country. Residents have raised concerns about rising electricity bills, water use, noise and land use, and some candidates have campaigned directly against new projects.

The governors of Texas and Pennsylvania, both up for re-election, announced executive actions on data centre construction, generally incremental restrictions on speculative projects, according to T. Rowe Price. BNY identified Texas, Georgia, Ohio and Pennsylvania as states to watch for data centre approvals, grid costs and tax incentives.

For investors, the issue is significant. State-level restrictions could affect power companies and engineering and construction firms, and data centre projects may shift to friendlier states, according to T. Rowe Price.

What it means for AI regulation

At the federal level, sweeping AI legislation remains unlikely in the near term. BNY expects federal AI regulation to remain limited because of opposition from President Trump, whose administration has favoured a light-touch approach and has sought to challenge state AI laws, arguing that a patchwork of state rules would hold back American companies in their competition with China.

That makes the states the key battleground. California has passed a law requiring transparency from developers of the most powerful AI models, written by state Senator Scott Wiener, who is now running for the congressional seat being vacated by Nancy Pelosi. Public First's affiliate has given $3 million to a super PAC supporting him, according to The Intercept. Colorado, New York and other states have also passed or debated AI laws.

If Democrats win the House, they have signalled plans to expand AI oversight through a new House Select Committee, according to BNY. Even without new laws, congressional hearings, investigations and subpoenas could increase scrutiny of AI companies, their safety practices and their political spending.

The market scenarios

Beyond AI, the balance of power in Congress matters for markets because it affects taxes, spending, tariffs and the government's borrowing needs. Early polls point to a divided government, with Democrats possibly winning at least one chamber, according to BNY.

A split Congress with Republicans holding the Senate would likely be more constrained, which BNY described as "generally positive for markets in limiting change." Under a divided government, "the Trump administration's ability to pass major legislation would be constrained by the need for bipartisan agreement," said Fortgang of T. Rowe Price.

A unified Democratic Congress could bring more oversight and funding limits on the administration, while legislation to limit executive actions such as tariffs would likely face presidential vetoes, according to BNY. A Republican sweep might initially be welcomed by risk assets, but BNY warned that a Republican Congress "could add the most pressure on bond markets," while T. Rowe Price said a clean sweep could weigh on the dollar and fixed income if it raised expectations of inflationary policies.

Deficits and the bond market

Whatever the outcome, fiscal pressure is likely to persist. BNY expects the US fiscal deficit to remain near or above 6% of GDP in 2027 and 2028, noting that divided government has historically tended towards "modest fiscal deterioration rather than consolidation." The federal debt ceiling, now $41.1 trillion, is expected to be reached sometime in 2027, according to T. Rowe Price, setting up potential confrontations in Congress.

Fiscal standoffs could push up long-term Treasury yields, which influence borrowing costs worldwide and the valuations of high-growth technology stocks, including the AI companies that have driven much of the market's gains in recent years.

Tariffs and trade

Tariffs imposed during Trump's second term look likely to persist regardless of the result, according to BNY, with Section 301 trade measures setting a firmer floor on tariff levels. Democrats appear inclined to protect key manufacturing sectors while reducing tariffs on some consumer goods. Reshoring of manufacturing is described as a durable theme whatever the outcome.

A nervous market backdrop

The election comes at a fragile moment for Wall Street. The S&P 500 fell about 1.8% on Friday, October 30, closing below its 100-day moving average for the first time since April, as Intel and Alphabet led a sell-off in technology stocks amid concerns about the returns on massive AI spending. Investors also face Apple's earnings on Monday and the October jobs report on Friday, making it one of the busiest weeks of the year.

Sectors where the election could bring the biggest shifts include defence, energy, healthcare and crypto, according to BNY.

Why it matters for India

The outcome matters for India in several ways. US trade policy, including tariffs on Indian goods, will be shaped by Congress as well as the White House. India's IT services industry, which earns a large share of its revenue from American clients, is sensitive to US spending, immigration policy affecting skilled-worker visas and the pace of AI adoption, which is transforming the services that Indian companies sell.

AI regulation in the United States will also influence global norms. India has favoured a light-touch, innovation-friendly approach to AI governance, and the direction of American policy, whether towards stricter oversight or continued deregulation, will shape the environment in which Indian AI startups and technology companies compete. Foreign portfolio flows into Indian markets also respond to US interest rates and risk sentiment, which the election could move.

What comes next

Results will begin arriving late on Tuesday in the United States, early Wednesday in India, although close races may take days to call. Whatever the outcome, the 2026 midterms have already shown that AI is no longer only a technology story but a political one. As Fortgang put it, "the midterms have offered an early glimpse of what AI politics might look like." For the AI industry, its investors and the governments watching from abroad, the next Congress will help decide how far and how fast that technology is allowed to run.