Just ten days remain until the US midterm elections. This election goes beyond simple domestic politics and marks a massive turning point for the future global economy.
Right now, the political momentum of the Trump administration hangs in the balance. People wonder if the Republican Party will sweep both the House and the Senate to complete a "Red Wave." Alternatively, the Democratic Party might retake the House or Senate to build strict checks and balances. Depending on this outcome, monetary policy, trade order, and major stock markets including South Korea will shake heavily.
This post closely examines two core scenarios and their global and domestic economic impacts with key numbers.
1. Scenario A: Republican Sweep of House and Senate
If the Republican Party grips control of both the House and Senate, the second Trump administration will accelerate its "America First" pledges without speed control.
Stricter tariff barriers and renewed trade wars will gain legislative backing. Universal baseline tariffs (10-20%) and high tariff policies against China will become reality. This shift shrinks global trade volume and forces a reorganization of global supply chains.
Renewed inflation and prolonged high interest rates will follow. Extended tax cuts and high tariffs stimulate domestic price pressure in the United States again. Because of this, the Federal Reserve might slow down or stop its rate cut stance, raising the risk of a lasting "High Dollar" phenomenon.
For the South Korean economy, upward pressure on the won-dollar exchange rate grows, increasing financial market volatility. Particularly, export-dependent industries like semiconductors, automobiles, and batteries will take direct hits from tariff risks and supply chain uncertainty.
2. Scenario B: Democratic Party Retakes Congress
Conversely, if the Democratic Party secures at least the House or takes control of one or both chambers to form a "Divided Government," brakes will apply to the unilateral drive of the Trump administration.
Legislative gridlock and brakes on tariff policies will happen. The Democratic Party, holding budget review rights and legislative power, will check unilateral tax cut extensions or excessive tariff policies. As radical trade pressure decreases, the predictability of the global trade environment increases relatively.
Fiscal spending control and interest rate stabilization will occur. Unchecked expansion of fiscal deficits slows down, reducing government bond issuance pressure and stabilizing long-term bond yields. This action acts as a factor that eases the strong dollar trend to some degree.
For the South Korean economy, the easing speed of US-China conflicts will act as a short-term positive factor by resolving uncertainties for domestic stock markets and export companies. The exchange rate will also gain more room to find stability.
3. Three Spectator Points Through Numbers and Statistics
The fate of "3" seats: Current House seat numbers show a very tight race, meaning a difference of just 3 to 4 seats can flip the master of congressional control.
"100%" tariff bomb worries: Talk of retaliatory tariffs over 100% on specific items under a Republican solo run raises uncertainty in global trade order.
The crossroads of the "1,400 won" exchange rate: Whether the strong dollar continues based on election results will decide if the won-dollar exchange rate fixes around the 1,400 won range or stabilizes below the mid-1,300 won range.
4. Attitude Investors and Markets Must Prepare
Historically, stock markets tended to rebound right after US midterm elections as uncertainties resolved. However, because this election decides the intensity of America First policies and protectionism, it serves as a watershed moment that decides the future direction of global interest rates and exchange rates, going beyond a simple political event.
We need to manage asset portfolio volatility against the final opinion poll trends in the US over the next ten days and the foreign exchange market turbulence that election results will bring.
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