Oil, drugs and defence firms face taxes, wage hikes and price cuts, writes Denis Staunton in Washington

Last week's Democratic election victory, which the White House warned would trigger a "major stock sell-off", instead saw the Dow Jones Industrial Average soaring to record levels. It was not that US business was cheering the Democrats - after all, two-thirds of corporate campaign donations went to Republicans - but Wall Street concluded that the outcome would probably not make much difference to the economy.

A Democratic Congress could make a dramatic difference to some sectors, however - notably pharmaceuticals, energy and defence, which all had especially warm relationships with the Republicans.

The mid-term election result could also have important implications for world trade, making a successful conclusion to the Doha Round of negotiations less likely than ever and perhaps denying President George Bush a renewal of his "fast-track" authority to negotiate trade deals next year.

This week, Mr Bush went to Vietnam empty-handed after Congress, which remains under Republican control until January, failed to approve normalised trade relations between the two countries.

In Singapore yesterday, Mr Bush spoke of "one of my chief concerns, that our country would become - could possibly become - isolationist and protectionist".

Many of the new Democrat senators and congressmen are sceptical of free trade, calling for safeguards to be written into future trade deals to protect US jobs.

Writing in the Wall Street Journal this week, Virginia's new senator Jim Webb warned that America's business elite was becoming oblivious to the effects of growing inequality, which has seen corporate profits and executive compensation soar while workers' wages remain stagnant.

"Manufacturing jobs are disappearing. Many earned pension programmes have collapsed in the wake of corporate 'reorganisation'. And workers' ability to negotiate their futures has been eviscerated by the twin threats of modern corporate America: if they complain too loudly, their jobs might either be outsourced overseas or given to illegal immigrants," he wrote.

The Democrats have promised that their first action will be to increase the minimum wage, which has not risen for more than a decade. Although small businesses claim that they will no longer be able to hire workers if they have to pay a living wage, most big companies - including low-wage employers like McDonalds and Wal-Mart - are relaxed about the increase.

Massachusetts congressman Barney Frank, who is set to become chairman of the House of Representatives financial services committee, this week proposed a "grand bargain" between Democrats and the business community on trade, immigration and the minimum wage.

Democrats might introduce business-friendly legislation on immigration and foreign investment in exchange for a hike in the minimum wage and the promotion of affordable housing.

"We are in gridlock now on economic policy. What I want to propose to the business community is a bargain," Mr Frank said.

The Democrats will introduce legislation to allow the government to negotiate drug prices directly with pharmaceutical companies, thereby reducing the cost of health care for senior citizens and the poor and hitting "Big Pharma's" profits. The drug companies gave so generously to the Republicans that they have been able to ignore widespread public anger at the high cost of medicine in the US.

The Bush administration forbade cities, states and the federal government from negotiating price reductions on bulk purchases of pharmaceuticals and tried to stop US citizens from importing cheaper drugs from Canada. The government accounts for about 46 per cent of the US pharmaceutical market so it will be in a strong position to negotiate, effectively ordering substantial price cuts.

American consumers are so outraged by the high cost of healthcare that any move that will cut prices is likely to win the support of some Republicans as well as Democrats. So the pharmaceutical companies have good cause to be worried.

Oil companies, which are so close to the Bush administration that they helped vice-president Dick Cheney to draft an energy bill during a series of secret meetings in 2001, are also facing into tougher political times.

Democrats complain that energy companies have not been paying sufficient royalties for oil and gas extracted from federal lands and that oil companies have benefited from unfair tax breaks while their profits soar. The new Congress will move to increase drilling fees and rescind the tax benefits oil companies received in 2004.

Defence contractors are another group likely to suffer as the new Congress increases pressure on the administration to withdraw from Iraq and launches investigations into waste and fraud in the provision of services to the military there.

The Democrat leadership has promised to restore pay-as-you-go budget rules in an effort to rein in the huge deficit created since Mr Bush came to power six years ago. Such rules may prevent spending increases or revenue reductions from being enacted, but they will not make much impact on a baseline deficit that could be more than $300 billion (€235 billion) annually each of the next few years.

Charles Rangel, the New York Democrat who is the new chairman of the House ways and means committee, has promised not to increase taxes on middle- income earners. In fact, he wants to exempt low and middle- income households from paying the "alternative minimum tax", a tax originally aimed at the wealthy that has become a burden to many in the middle class.

Cutting taxes for the middle- class could cost $40 billion in the first year alone, obliging Mr Rangel to fund middle-class tax relief by raising taxes for others. He promises to go after tax cheats, close loopholes, and abolish tax breaks for industries like big oil.

"Will their taxes be increased? I'm sorry, the answer is yes." Mr Rangel said.