[INSIGHT]U.S. looking ahead, but we can'tPaul H. O'Neill, the Secretary of the Treasury, and Lawrence Lindsey, the White House economic adviser, resigned suddenly on Dec. 5, reportedly as part of President George W. Bush's strategy to avoid having the economy become an issue in 2004. Perhaps it is the same in the United States as here: Government ministers are political scapegoats.
Four days after they resigned, John W. Snow and Steven Friedman were chosen as their successors. Mr. Snow was the chariman of CSX Corp. and Mr. Friedman is a former Goldman Sachs Investment chairman, so they bring extensive real-world experience to their new jobs. President Bush has high approval ratings for his security policy because of his war against terror. Unless he mismanages the economy, he will have no problem winning re-election. His father, George Bush, was done in by the economy in his re-election bid even though he crushed Iraq in the Gulf War in 1991. Without a good economy, it is impossible to be elected president even though bombs can suffice in national security.
The younger Mr. Bush hinted at new measures to stimulate the economy when he announced the names of his new secretary and adviser. There was nothing concrete, but the keynote is probably tax cuts, which have been the Republicans' game plan. The administration has already prepared measures to promote consumption and stimulate economic growth and employment by $300 billion of tax reductions over three years. The economy of the United States, 10 years into the "new economy" era, is stalling out. Even the "Greenspan effect" is not working; the Federal Reserve Board recently cut interest rates drastically but market reaction was cold. Unemployment is climbing.
To a Keynesian economist, if financial policies don't work, fiscal policies must take up the slack; but the United States is already running a huge trade deficit and now its overall national accounts, financial and trade, are in deficit. Tax cuts, a fiscal stimulus, are at the root of the trade and financial deficits.
An alternative to tax cuts would be a dollar devaluation, which does not affect consumption much but would decrease the trade deficit. There would be an embarrassing outflow of foreign funds, but such a move would increase exports.
Closer to home, the Bank of Korea estimated that the economy will grow 5.7 percent next year. It is unusual that the usually cautious and conservative bank has issued an optimistic forecast this time. The prediction that exports will lead growth in the first half and investment and consumption will rebound in the second half makes me uneasy. Through September, exports to the United States in 2002 amounted to $26 billion, about 3 percent of the U.S. import market. China exported $89.5 billion worth of goods to the United States in the same period, 10 percent of U.S. imports. In Japan, the situation is similar. Korean exports had a 4.5 percent import market share there, while China grabbed 18 percent of the market.
One of the most serious upcoming problems in this region is a war to devalue currencies. In a nod to Japan's stagnating economy, the U.S. Treasury Department has restrained itself from devaluing the dollar. The Treasury, however, will probably accept the business community's "weak dollar" demands under a new secretary. The Japanese government, after struggling with its overvalued currency, recently pressured China publicly to revalue the yuan. China responded by saying that Japan should not blame China for its woes. The debates over currency rates are already becoming heated in the two countries with the world's largest foreign reserves. Amid the debate, how high the yen will stay will determine the survival of Korea's exports. But the won continues to climb, and is expected to hit the 1,150 mark against the dollar next year.
That is not the end of the gloomy story. Our balance of trade in services is expected to be $8.5 billion in the red next year, the largest deficit ever, and our current account surplus will probably fall from $7 billion won this year to $3 billion next year. A number of research institutes even forecast that the surplus will turn into a deficit, meaning that foreign currency earned by exports will be all spent on overseas travels and studying abroad. The war against Iraq and political uncertainties are not, obviously, part of these equations. That is why I envy U.S. politicians, who are already focusing on the country's economy in 2004.
* The writer is an editorial writer of the JoongAng Ilbo.
by Joseph W. Chung