Was the tariff offensive by President Donald Trump, which rushed toward all trading partners, ultimately a case of self-sabotage? Alarms are growing over a hard landing for the U.S. economy. Signals indicating that the U.S. economic situation is concerning are emerging one after another, with employment, consumption, and manufacturing indicators showing increasing market unease.
The problem is that concerns about a U.S. economic downturn may spread to the global economy. As signs of a downturn in the U.S. economy become clearer, the Central Bank of the United States will have no choice but to implement a loose monetary policy. While this may temporarily boost global asset markets, the potential impact on global corporations, when the largest market, the U.S., struggles, is likely to act as a negative factor in the market.
In the second quarter, the U.S. gross domestic product (GDP) increased by 3.0% compared to the previous quarter. The U.S. economy, which experienced negative growth in the first quarter, unexpectedly returned to a growth trend. Experts had anticipated an increase of 2.3% to 2.5% in the U.S. GDP for the second quarter, but the actual results significantly exceeded market expectations.
Looking at just the indicators, it seems as if the U.S. economy rebounded strongly, but that is not the reality. The significant increase in GDP is not the result of increased corporations' investment, export, or household consumption, but rather the impact of a drastic decrease in imports. At the beginning of the year, when the Trump administration announced indiscriminate tariffs, corporations began hoarding in anticipation of the tariffs, and when this pre-purchase effect disappeared, an import cliff occurred in the second quarter. As imports fell, the trade deficit decreased sharply, leading to a substantial improvement in economic performance.
Kim Ho-jung, an economist at Yuanta Securities Korea, noted, "The fundamentals of the U.S. economy have not significantly improved; rather, the indicators reflect a situation entangled with domestic slowdown and income inequality," adding, "The numbers reveal that the U.S. economy is cracking behind the scenes."
Another pillar supporting the economy, employment, also shows signs of collapsing. The employment indicators for the U.S. in July were surprisingly poor. The number of unemployed has increased, and the increase in employment has fallen significantly short of expectations. The previously estimated employment growth figures for May and June have also been drastically revised downward.
Kim Jin-sung, a researcher at Heungkuk Securities, expressed concern that "these changes in the U.S. labor market are the result of the federal government's restructuring and the impact of tariff increases," stating that "as the effects of tariff increases become more pronounced in the future, employment will continue to contract, leading to weakened purchasing power and reduced consumption as inflationary pressures rise."
As concerns about a U.S. economic recession deepen, the likelihood of a rate cut by the U.S. Federal Reserve is increasing. However, the U.S. Federal Reserve has limited options as it must combat the greater enemy of inflation.
If the U.S. economy deepens in distress while the Federal Reserve finds it difficult to continue flooding the market with money, it will inevitably impact the Korean economy. Exports are likely to bear a significant burden.
In this situation, the refuge lies in the activation of domestic demand dependent on the new government's stimulus measures. Jo Byeong-hyeon, a researcher at DAOL Investment & Securities, said that "market trends led by structural growth expectations in the AI semiconductor and shipbuilding, defense, and power equipment sectors are unfolding, and attention may also be warranted for consumer goods and healthcare sectors."