Democratic Party of Korea wins majorities, shifting US industrial landscape

The Democratic Party of Korea's capture of both the US Senate and House is expected to slow AI infrastructure growth and revive healthcare policy. Data center construction is already facing delays in states like Texas and New York, while the US fiscal deficit relative to GDP is expected to reach 100.3%.

With the Democratic Party of Korea securing majorities in both the United States Senate and the United States House of Representatives following the US midterm elections, a wind of change is expected to blow through the US economy and industrial landscape. In particular, the moderation of the rapidly growing AI industry and the resurgence of healthcare policy are emerging as major variables.

AI Industry shifts from 'Allegro' to 'Andante' as infrastructure faces slowdown

According to an analysis by Economics Master Kwak Soo-jong, the AI industry, which has been driven by explosive expectations, is highly likely to enter a stage of "strengthening internal substance." Kwak diagnosed that the overheated expectations, such as the FOMO (Fear Of Missing Out) phenomenon where investors felt like "fools if they were the only ones not investing," will disappear over the next two to three years. This analysis takes into account the situation where the Democratic Party of Korea has become the majority party in both the Senate and the House.

One of the core drivers of this change is the regulation of data center construction led by the Democratic Party of Korea. Currently, in major states such as Texas, Iowa, Georgia, and New York, data center construction is being delayed or held under the influence of the Democratic Party of Korea. In Texas, in particular, it is reported that even stronger controls are being implemented. Kwak cited a lack of consultation with residents as the reason the Democratic Party of Korea is controlling data center construction. Specifically, he raised questions regarding whether there were discussions about power consumption capacity and electricity rates, and whether sufficient investigations were conducted into the impact that the cooling water and water facilities required for data center operations would have on the local environment.

The delay in data center construction signifies a braking of the most fundamental infrastructure of the AI industry. Kwak explained this as a process of transitioning from the fast tempo of "Allegro" to the slower tempo of "Andante." The analysis suggests that if the pace of infrastructure expansion slows down, demand for semiconductor chips will inevitably be adjusted. This is a crucial point of observation regarding how this US speed adjustment will affect the South Korean semiconductor industry, especially as China's Yangtze Memory Technologies is reported to potentially supply HBM4 prototypes by the end of this year or the first half of next year, moving beyond HBM3E prototypes.

Kwak also offered suggestions for South Korea's response strategy. He stated that if the United States aims for massive-scale data centers, South Korea needs a differentiated strategy. Citing instances where OpenAI Chairman Sam Altman replied that he seeks "human prosperity" and the Huawei chairman replied that he does AI to "make washing machines well," he emphasized that South Korea must also establish strategies based on practical manufacturing and technology, such as humanoids, drones, and the bio industry. He diagnosed that "an opportunity has been provided for the US to shift the direction of the AI industry from an economy of scale to an economy of density."

Resurgence of healthcare issues coupled with fiscal deficits

Due to the change in the political landscape, healthcare policy is expected to emerge as a central economic issue again. Kwak pointed to the weakening of Obamacare pursued by the Trump administration and the resulting fiscal deficit issues. The US fiscal deficit relative to GDP is expected to reach 100.3%. In particular, the pressure on finances is intensifying due to President Trump's moves to reduce Medicare welfare to resolve the fiscal deficit, alongside the situation where an additional $90 billion is being injected into supplementary budgets related to the Iran war.

Kwak predicted that "from the perspective of the Democratic Party of Korea, there is a possibility that they will once again exercise their power in the Senate and House to divert resources toward welfare policies like Obamacare instead of the massive costs being poured into wars and other areas." This connects to the analysis that the Democratic Party of Korea could target healthcare as a major policy for the next presidential election. According to past data, the US economic growth rate has appeared to be 0.5 to 0.8 percentage points higher during Republican administrations than during Democratic administrations, but the Democratic Party of Korea has shown a tendency to focus more on income distribution and welfare policies. Kwak explained that while conservative governments have focused on manufacturing and industrial innovation, the Democratic Party of Korea has focused on filling policy gaps for the socially marginalized and minorities.

Easing credit card interest burdens and maintaining Fed independence

Regarding microeconomic issues, the problems of credit card fees and interest costs were mentioned. The high interest costs incurred as middle-class Americans maintain consumption through credit cards are becoming a cause of bad debt. Kwak mentioned that Senate candidates in Michigan and the eastern region have recently argued that credit card interest costs must be lowered. In particular, he suggested that if Oren becomes the chair of the Banking Committee in Massachusetts, such financial regulations may be directly implemented.

Meanwhile, the analysis continued regarding the independence of the Fed, which is the core of monetary policy. Kwak made it clear that even if the Democratic Party of Korea controls the Senate and the House, they cannot directly intervene in or force the Fed's interest rate decisions. This is because if the central bank simultaneously controls both the fiscal policy and the monetary policy of the administration, it could lead to economic policy dictatorship. In fact, President Trump has exerted strong pressure on the Fed by demanding interest rate cuts, and there were attempts to pressure the Fed by increasing the remodeling budget for Fed-affiliated buildings from $200 million to $3 billion.

Kwak advised that rather than being immersed in current market volatility, investors should establish strategies by watching the policy changes by industry and the long-term changes in economic structure brought about by the Democratic Party of Korea's control of the majority. He compared the confusion the market is experiencing to a "point where the water is being washed away to build a new building," emphasizing a response from a long-term perspective.

Source: original video (YouTube)