Start of China-U.S. trade war worries Korea

Korea was exempted at least temporarily from steep U.S. tariffs on steel and aluminum. But then China announced it will impose new reciprocal tariffs on some U.S. goods, an escalation of trade warfare that is guaranteed to affect Korea one way or another.

U.S. Trade Rep. Robert Lighthizer on Thursday told the Senate that the Donald Trump administration decided to “pause” the imposition of new tariffs on steel and aluminum from Korea, the European Union, Argentina, Brazil, Mexico and Canada.

The decision came a day ahead of the tariffs going into full effect, sparing Korean producers new 25 percent tariffs on steel and 10 percent tariffs on aluminum.

Since Trump signed on steel tariffs provision earlier this month, the Korean government has been working hard to convince the White House to reconsider its case.

Korean Finance Minister Kim Dong-yeon met with Treasury Secretary Steve Mnuchin during the G-20 meeting in Buenos Aires earlier this week while Trade Minister Kim Hyun-chong had a meeting with Lighthizer in Washington on Wednesday.

Although Korea is exempted from the tariffs for now, it will need a final decision by the White House in order to be completely safe, which is to be made at the end of April and may come with conditions.

Friday’s decision may be used as leverage by the United States in the ongoing renegotiation of the bilateral free trade agreement with Korea.

“The idea that the president [Trump] has, is that based on a certain set of criteria, that some countries should get out,” Lighthizer said.

One of the key demands by the United States is greater access to Korea’s automotive market for U.S. automakers, which includes easing environmental regulations. Auto exports are a key part of Korea’s trade surplus with the United States. Last year, the surplus stood at $17.75 billion.

It was announced on Friday that Korea’s semiconductor exports hit a record high in 2017. But the tariff exemption and record shipments of chips had little positive impact on the Korean stock market, which reacted more seriously to growing trade conflict between the United States and China.

A trade war between the two nations was sparked by Trump, who on Thursday approved a maximum of $50 billion in tariffs on Chinese imports. The tariffs are in retaliation for China’s alleged infringement of American intellectual property theft. The $50 billion figure is Washington’s estimate of the economic damage suffered by the U.S. as a result.

The following day, China retaliated by announcing $3 billion worth of reciprocal taxes on U.S. steel and pork, stressing that its action was justified within the World Trade Organization’s legal framework. It said it will be imposing a 25 percent tariff on U.S. pork and a 15 percent tariff on steel pipes, fruits and wine.

Korea’s benchmark Kospi index, which rose on Thursday despite the U.S. Federal Reserve raising its key rate to a level that surpasses the base rate in Korea, fell by 3.18 percent on Friday, shedding nearly 80 points, to close at 2,416.76. The local currency hit 1,082.20 won to the dollar, down 9.5 won or 0.89 percent in a single day.

“An all-out trade war, it will cause global stagflation and decrease global trade volume, which will have a negative impact on Korea,” said So Jae-yong, an economist from Hana Financial Investment.

“Korea’s economy depends heavily on exports to China and the United States,” said another expert. “Korea is basically being caught in the crossfire.”

BY LEE HO-JEONG AND CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]