Trumpflation’s attackInternational financial markets have begun to rock as the possible ramifications of the presidency of Donald J. Trump sink in. Government bond yields have shot up and the U.S. dollar is on a strengthening streak. Commodity prices have also gone north on expectations now that the days of ultra-low interest rates and depressed inflation are gone. This is all bad news for the vulnerable Korean economy.
The yield on long-term benchmark 10-year Treasury notes hit an annual high of 2.2614 percent on Monday, up 0.4 percentage points from the presidential election day and nearly 0.7 percentage points from early October. The yield on the 30-year note jumped above 3 percent on expectations of fiscal stimuli actions under Trump, including hefty tax cuts and infrastructure spending.
Anticipation for accelerated tightening and inflation increased the value of the U.S. dollar while sending the Chinese yuan to its lowest level in eight years and three months. Prices of coal and copper jumped 23 percent and 8 percent, respectively, over a week.
The strengthening in the capital markets does not stem from signs of economic recovery, but from repercussions of Trump’s victory. The U.S. president-elect pledges inner-oriented and protectionist business and trade policies. He is out to kill the signature free trade policies and legacies under the Democrats-led administration. He wants to increase interest rates and ambitious infrastructure spending to revive U.S. economic supremacy.
Such moves bode badly for the global economy. The international financial scene would become hostile and wobbly in trade frictions and reduce commerce. The export-reliant Korean economy will be hit hard. Local interest rates have begun to go up. They could tip the dangerous pile of household debt nearing 1,300 trillion won ($1.1 trillion). Korea could become a casualty case in the trade war between the U.S. and China.
Yet the economy is without a commander-in-chief. The title deputy prime minister for economy is currently shared by incumbent Yoo Il-ho and nominee Yim Jong-yong. Economic management is neglected because the executive office and legislative are entirely engrossed in actions on the scandal-ridden president. In the meantime, the Korean economy is dangerously sailing astray in the turbulent waters.
JoongAng Ilbo, Nov. 17, Page 34