DB Financial Investment "US Economic Downturn Inevitable... Reduce Investment in US-Related Stocks"

Trump's Protectionism Negatively Impacts US Economy
US Stock Returns Expected to Worsen
Recommendation to Reduce Investment in Sectors with High Domestic-US Exposure

DB Financial Investment stated on the 24th that "due to Trump's protectionism, the U.S. economy could decline from its current peak at a faster pace."

Hyunki Kang, a researcher at DB Financial Investment, said, "We need to pay attention to the significant fluctuations in the U.S. economy around 2018, when protectionism became full-fledged during Trump's first term."

Researcher Kang pointed out, "First, under America First policy, tariffs were imposed on other countries, causing the economies of trading partners to decline, which in turn led to a global economic slowdown. Along with the contraction of total demand, the U.S. manufacturing sector also suffered damage."

Additionally, Kang recalled that around 2018, the number of job openings in U.S. companies decreased and new facility investments also declined. He analyzed, "As the inventory-to-shipment ratio in U.S. manufacturing worsened and business conditions deteriorated, there was no need for additional workers, which resulted in a decrease in the number of job openings in the U.S. Companies also reduced new facility investments."

Furthermore, he pointed out that the decline in the U.S. potential growth rate around 2018 is an important implication. Researcher Kang diagnosed, "Due to the decrease in job openings and reduction in new facility investments, immigration policies were tightened. Since immigrant inflow was suppressed, the likelihood of an increase in the core labor force in the U.S. decreased." The resulting decline in the U.S. potential growth rate was inevitable.

Kang stated, "To overcome the global deflation that occurred from 2012 to 2015, restructuring was carried out worldwide, and only in the second half of 2016 did the economy recover. The protectionism during Trump's first term prematurely ended this private-sector-driven economic recovery."

Researcher Kang noted that recent global economic indicators mostly show a downward trend starting from this summer as the peak. He said, "Regardless of who becomes the U.S. president, it is difficult to change the direction of the economy itself. If stronger protectionism is implemented during Trump's second term, the global economy and the U.S. economy could decline from the current peak at a faster pace."

Kang emphasized, "From the perspective of the global stock market, it should be kept in mind that the deterioration in stock market returns outside the U.S. could also be experienced by the U.S. stock market." He added, "From the perspective of the Korean stock market, it is reasonable to reduce investment proportions in sectors with high exposure to the U.S."