The domestic stock market shrank considerably the previous day (4th) amid the barrage of "tariff wars" the United States is waging against its trading partners. With the long economic slump causing a significant decline in the profitability of domestic corporations, they managed to endure while awaiting an export recovery; however, the stock market plummeted helplessly as the U.S. began a high-intensity tariff war.
However, investor sentiment somewhat recovered after a day. The stock market rebounded as the U.S., Canada, and Mexico agreed to postpone the imposition of tariffs for 30 days on the night of the 4th.
Experts predict the repercussions of the tariff war will act as an instability factor in the stock market for the time being. This is because the U.S. has indicated that it may raise and impose tariffs on China and the European Union (EU). Nevertheless, analysis suggests that the likelihood of the U.S. engaging in an extreme "chicken game" against its allies is low. There is also a possibility that the impact of the tariff war on the domestic stock market may be limited in the short term.
The KOSPI and KOSDAQ indices, which started higher on the 4th, are recovering the losses from the previous day while increasing their gains. As of 11 a.m., the KOSPI index is up 2%, and the KOSDAQ index is nearly 3% higher.
Last night, the U.S. stock market significantly reduced its losses and closed after the three countries agreed to postpone the imposition of tariffs on Canada and Mexico, scheduled for the 4th, for 30 days. The announcement of tariffs over the weekend caused Asian and European stock markets to drop sharply, leading the U.S. Nasdaq Composite Index and the Standard & Poor's 500 Index to open down by more than 2.0% and 1.5%, respectively; however, as news of the tariff postponement emerged, the losses were reduced to 0.28% and 0.76%.
◇ "The tariff war is immediately negative for our exports"
Although investor sentiment significantly recovered within a day, concerns about the tariff war initiated by the U.S. remain. The domestic stock market dropped sharply after U.S. President Donald Trump signed an executive order imposing a universal tariff of 25% on Mexico and Canada on the 1st. On the 3rd, the KOSPI index fell 2.5% compared to the previous day, and the KOSDAQ index also dropped 3.4%. That day alone, the market capitalization of the KOSPI and KOSDAQ evaporated by 64 trillion won.
In particular, the stock prices of corporations with large market capitalizations fell significantly in the stock market on the 3rd. Domestic corporations that have established operations in Mexico and Canada suffered direct hits. LG Electronics dropped 7.1%, and Kia fell 5.8%. HL Mando and POSCO FUTURE M also fell by 7-9%.
The reason these corporations have expanded into Mexico and Canada is to capture the enormous U.S. market. Until President Trump signed the executive order on the 1st, the U.S., Mexico, and Canada had effectively enjoyed duty-free treatment. Since the Trump administration's first term, as U.S. trade sanctions against China have steadily intensified, these neighboring countries became the last bastion for our corporations.
However, if the duty-free benefits for Mexico and Canada are eliminated, there is a growing possibility that the investments our corporations have poured into these countries will go to waste.
Some analysts predict that the Trump administration will not engage in an extreme tariff war against its allied countries. On the night of the 3rd, the U.S., Canada, and Mexico agreed to postpone the imposition of tariffs for 30 days, just before the scheduled implementation.
However, the spark of the tariff war has not been completely extinguished. As long as the justification for the U.S. threatening these countries with tariffs is not fundamentally resolved, conflicts could flare up again at any time.
Moreover, President Trump has warned of tariff increases against China and the imposition of tariffs on the European Union (EU). Park Seung-jin, a researcher at NH Investment & Securities, noted, "While it can be inferred that President Trump is leaving room for negotiation, the current situation requires acceptance of financial market volatility generated in the process of reciprocal responses based on political considerations."
The stock market, which had plummeted significantly on the 3rd, found some stability on the 4th; however, the immediate impact of the tariff war is still considerable. Jeong Yeogyeong, an economist at NH Investment & Securities, has downgraded this year's export growth rate for South Korea from the previous 4% to 3.5%. The economist stated, "U.S. households proactively replaced durable goods in the fourth quarter of last year ahead of the introduction of the tariffs," adding that "in the initial phase of tariff imposition, U.S. household consumption of durable goods is likely to slow down." This indicates that adverse conditions have already arisen for corporations that heavily rely on exports.
◇ "U.S. corporate tax cuts and regulatory relief may offset tariff shocks"
However, some analysts suggest that the valuation of our stock market is low and that, contrary to concerns, the impact of the tariff war will be limited. While the EU is also responding to U.S. tariff impositions, making the world react actively to the tariff war originating from the U.S., it indicates that the issues at hand are not shocking enough to trigger a collapse in our stock market.
There are several grounds to support these forecasts. First, experts analyze that the tariff war initiated by the Trump second administration exhibits somewhat different characteristics than the trade war during the first term.
Kim Il-hyuk, a researcher at KB Securities, stated, "In the first term of the Trump administration, the policy objective to exclude and isolate China from the global supply chain was clear, and this policy trend continued into the Biden administration, appearing as a movement to relocate production facilities to friendly countries like Mexico, Canada, India, and Vietnam; however, this time it is pressuring allied countries to relocate production facilities into the U.S. by targeting illegal immigration and drug trafficking." He added, "In reality, the effectiveness of this policy trend can only be short-lived."
There is also a view that the tax cuts and regulatory relief of the Trump administration could offset the burden of tariff imposition. The Trump administration plans to lower the corporate tax rate from 35% in 2017 to 21% and eventually to 15%, aiming to create a "manufacturing renaissance" in the U.S. Corporations that have made significant investments in the U.S., such as Samsung Electronics and Hyundai Motor, can expect tax cut benefits. Additionally, massive regulatory relief in the energy and financial sectors has also been forecasted.
An investment manager at an asset management firm stated, "The key policies the Trump administration will pursue include numerous pro-business policies, such as tax cuts and regulatory relief," adding, "If the operational rate of U.S. factories increases, our exports may also benefit, offsetting the burden of tariffs."
This manager noted, "When energy demand increases, industries that can relatively quickly establish infrastructure, such as solar energy or machinery companies that benefit when construction demand rises, may see their stock prices rise," suggesting that "there are various investment ideas to consider."