Trump faces setbacks in the midterm elections as anti-data center forces quietly rise

Democrats Sweep the U.S. Midterm Elections, Reshaping the Global Tech and Industrial Landscape.

Democrats won gubernatorial races in key states such as Texas and Georgia, with some candidates explicitly promising to implement moratoriums on data center construction. This result has led the market to question the outlook for AI infrastructure expansion—Asian semiconductor stocks broadly fell on Wednesday, U.S. Treasury yields retreated, and the Nasdaq has corrected about 8% over the past month.

For Korean companies, the impact of the election result is mixed. Chip manufacturers such as Samsung Electronics and SK Hynix are concerned that tightening data center regulations will suppress demand for server DRAM and high-bandwidth memory; meanwhile, renewable energy companies like Hanwha Solutions are optimistic about the Democratic push to restore clean energy tax credits under the Inflation Reduction Act.

The scale of wins by data center opponents in this midterm election caught the market by surprise. In Texas, GLJ Research estimates the state will account for roughly a quarter of the data center capacity the U.S. is set to bring online by 2030. Democrat Gina Hinojosa defeated incumbent Republican Governor Greg Abbott, ending the GOP’s three-decade dominance in the state; fellow Democrat James Talarico also secured a Senate seat. In Georgia, commercial real estate agency CBRE reports Atlanta is the most active U.S. market for data centers under construction, and Democrat Keisha Lance Bottoms won the state's governorship, ending more than 20 years of Republican rule.

Notably, opposition to data centers is not purely along party lines. Detractors criticize data centers for being noisy, consuming large amounts of water and electricity, and driving up residential power bills, while the jobs and tax revenue they create are disproportionate to the incentives granted by state governments. Even some Republicans have turned against these projects.Elon Musk donated more than $450 million to the Republican Party this cycle and joked on social media on election night, “Data centers in space are starting to look pretty attractive.”

Aidan Yao, Senior Investment Strategist at the investment research arm under Europe’s largest asset manager Amundi, stated:

“In our view, this midterm election is more like a referendum on AI than a referendum on Trump. If the AI theme is restricted in certain ways, the outlook for the U.S. economy, inflation, and monetary policy all become extraordinarily uncertain.”

For Samsung Electronics and SK Hynix, Democratic control of Congress sends mixed signals. The positive is that Democrats are positioned to block Trump administration efforts to cut semiconductor bill subsidies. The Trump administration has sought to renegotiate subsidy terms finalized during the Biden administration, a move criticized by some Democratic lawmakers. The subsidies tied to Samsung’s factory investments in Taylor, Texas, amount to as much as $4.745 billion.

However, the risk of stricter data center regulation is mounting. Industry sources note that the market’s main concern is that data center construction approvals may be tightened on grounds of AI safety, power, and environmental issues, resulting in delayed project launches and ultimately dragging on demand for server DRAM and high-bandwidth memory.

KB Securities analyst Kwon Hee-jin believes stricter regulations may not directly shrink investment. “Data centers have a major impact on regional tax revenues and economies, so state governments will find it hard to outright ban construction,” he said. “What’s more likely is shifting power costs onto data center operators, or requiring them to secure their own energy supply before work can begin.” If that’s the case, tech giants will have to build their own substations, power transmission, and generation facilities, and overall infrastructure spending could rise, creating new demand for Korean power equipment manufacturers.

The automotive sector does not expect much policy easing. The 15% tariff imposed under Section 232 of the Trade Expansion Act is an executive power and is likely to remain unchanged regardless of which party controls Congress. Cho Sung-dae, head of the Korea International Trade Association’s trade research division, stated: “Congress may increase its oversight of government policy implementation, but a major shift in tariff measures is very unlikely.” He believes that as Washington continues to focus on protecting domestic industries and strengthening supply chains, both auto tariffs and pressure to expand U.S. production will persist.

However, Democratic control of Congress could give EV promotion policies new impetus, helping Hyundai and Kia further deepen their electrification strategies.

The key variable for shipbuilding is the extent to which the U.S. will allow its naval vessels to be built overseas. The House-passed National Defense Authorization Act explicitly prohibits funding for construction of combat vessels at foreign shipyards, while the Senate Armed Services Committee version allows certain non-combat ships to be built abroad.

Shinhan Securities notes that if the U.S. further hardens its stance against building naval vessels abroad, expectations for MASGA—i.e., the “Make American Shipbuilding Great Again” Korea-U.S. shipbuilding cooperation project—yielding new shipbuilding orders will narrow, and cooperation will mainly focus on maintenance, modules, and local shipyard activities. However, with rebuilding U.S. shipbuilding an area of bipartisan consensus and MASGA investment led by the executive branch, the overall cooperation framework is widely expected to remain intact.

The renewable energy industry is the most optimistic in response to the election results. Democrats campaigned on restoring the clean energy tax credits in the Inflation Reduction Act, from which companies like Hanwha Solutions—who have major bases in the U.S.—stand to benefit. The solar sector in particular is worth watching—Korean companies are in an advantageous market position as a result.

The reason Korean companies are highly sensitive to shifts in congressional power is closely tied to their growing U.S. business footprint. According to a survey conducted by business data provider CEO Score of 28 major conglomerate overseas subsidiaries, as of the end of June this year, the number of U.S. subsidiaries reached 1,308—a 232.0% increase from 394 a decade earlier—boosting the U.S. share of all overseas subsidiaries from 13.0% to 26.5%.

The number of U.S. subsidiaries owned by Samsung, SK, Hyundai Motor, LG, and Hanwha grew from 240 to 888 over the same period. Notably, Hanwha saw the most dramatic increase, from 63 to 374 subsidiaries, due to aggressive expansion in solar and energy storage; SK followed, growing from 40 to 243; and Hyundai Motor increased from 55 to 112.