"Let's tighten our belts and maintain fiscal soundness, even at the risk of a recession."
"If we only focus on growth, we can repay that liability all at once and still have more left over."
The securities industry sees the latter claim as a sentence that better explains the policy intentions of U.S. President Donald Trump. It's said that Trump is someone who opts for flamboyant bets rather than taking a steady view on and addressing the country's long-term tasks.
With the U.S. stock market entering an adjustment phase, some observations suggest this was intended by the Trump administration, but it also indicates that the current recession is not the result of President Trump’s planning. KB Securities found their evidence in the personal history of President Trump, who experienced bankruptcy.
Lee Eun-taek, a researcher at KB Securities, stated on the 27th, "President Trump's life was one of being destroyed by liability and then succeeding with greater liability," and analyzed, "The current financial condition of the U.S. resembles the 1990s when his business went bankrupt."
Before becoming president, Trump was a real estate magnate. Trump, a graduate of the Wharton School of the University of Pennsylvania, inherited the family real estate development business.
In 1978, Trump received $1 million from his father to purchase the Commodore Hotel. He then rebuilt it as the Grand Hyatt Hotel. Trump made a fortune in every business he touched, including Trump Tower and casinos. At that time, he was also listed among America's wealthy by Forbes.
However, the downturn soon began. It came as excessive liability coincided with an economic recession. In 1988, Trump borrowed $245 million to acquire aircraft and routes for Eastern Air Shuttle. Although it traveled between New York, Boston, and Washington, D.C., market reactions were tepid, and within two years, he was unable to even pay interest. Ultimately, he relinquished ownership to creditors.
In 1991, his Taj Mahal Casino Hotel filed for bankruptcy just one year after opening. In addition, he reportedly experienced at least four bankruptcies before becoming president, and there was a time when his wealth turned negative.
His ability to recover was thanks to the greater liability. Trump proposed liability restructuring and stock conversions to the creditor group. The idea was, "If you call back the funds right now, we'll all go down; instead, if you lend more, I will repay it along with the interest." The researcher noted, "(Trump) resolved the crisis with negotiation skills bordering on intimidation," adding, "The greater liability made him a wealthy president."
The reason this researcher analyzed President Trump’s past is that they see the current financial condition of the U.S. as resembling the 1990s when Trump's businesses went bankrupt in succession. The researcher diagnosed, "Trump's solution is growth through leverage," stating, "What he wants is a strong growth strategy, not fiscal soundness at the risk of recession." The leverage he mentioned here refers to "tax cuts."
If President Trump used tariffs as a negotiating tool for tax cuts, stronger policies than the market expects are anticipated. The researcher stated, "Instead of directly asking, ‘Do you have money?’ it is easier to demand money after beating around the bush first," adding, "If tariffs are to be used as a negotiating tool, there is little need to worry too much about the damage to related industries."
One of the ways to fill the fiscal hole caused by tax cuts is defense costs. Countries targeted by President Trump for defense cost negotiations include major European countries, South Korea, Taiwan, and Japan. The researcher said, "Due to these concerns, the (securities) strength of China, South Korea, and Europe has stalled," and analyzed, "Everything is a means for tax cuts, a chaos that has an end."
However, there is also an analysis that President Trump cannot swing his sword blindly without consideration. The U.S. has a strong will to reshape the global trading system, but willpower and execution capability are different matters.
Kim Il-hyuk, a researcher at KB Securities, noted, "President Trump said he could grant exemptions on tariffs to many countries, which is different from the previous stance that there would be no exceptions in tariff imposition," and added, "If actual cases of exemptions emerge, the market will reconfirm that the statement ‘there will be no exceptions’ was a technique to enhance negotiating power."
Given that the U.S. reliance on overseas markets is significant, it is expected to be difficult to maintain the dictatorial attitude seen in the early days of the administration. The previous administration of Joe Biden pressured China by rallying allies, but the Trump administration is different. Since allies are becoming more economically dependent on China than the U.S., this aspect could hinder President Trump's actions.
Researcher Kim forecasted, "In this process, it will rather be revealed that the U.S. is significantly dependent on other countries," adding, "As the market realizes that achieving the goal of self-sustaining all raw materials and manufacturing all products without anyone's help is difficult, they will rather feel relieved."