Here comes protectionismDonald J. Trump will be sworn in as the 45th president of the United States on Jan. 20. He has championed an “America First” protectionist agenda that will upset the global economic and security order led by the U.S. since the end of World War II. If he stays true to his campaign platform, it will mark the end the U.S.-led globalism that has reigned over the last seven decades. Trump stands in contrast to John F. Kennedy, who defined the role of the U.S. as the world’s policeman and advocated for peace and liberal values in his inaugural speech in 1961. “More than any other people on earth, we bear burdens and accept risks unprecedented in their size and their duration, not for ourselves alone but for all who wish to be free,” Kennedy said.
Trump has set up the National Trade Council, a new advisory group within the White House, and named Peter Navarro, an economic adviser to his campaign and an outspoken protectionist in trade, as head of the council. Even before taking office, Trump went ahead with unconventional ways that undermined international rules on free trade by bullying U.S. carmakers Ford and GM as well as Japan’s Toyota to walk away from manufacturing expansion plans in Mexico with threats of high border tariffs.
In no time, Korean exports will face serious challenges through trade barriers and a renegotiation of the Korea-U.S. Free Trade Agreement. Seoul urgently needs to realign its dysfunctional trade coordination, planning and negotiating organization in the government and reinforce those functions with outside specialists.
During the campaign, Trump promised big tax cuts and, at the same time, an expansionary fiscal policy to fuel economic growth through massive infrastructure investment, which also could lead to a vicious cycle of protectionism.
The U.S. economy is already nearing complete employment. An expansionary fiscal policy at a time of solid recovery could prompt the U.S. Federal Reserve to be faster in tightening monetary policy through short-term interest rate hikes. This would accelerate the upward momentum of the dollar to weaken U.S. export competitiveness and worsen the current account balance. As a result, America would resort to even more protectionist actions and prompt its trading partners like China and others to disrupt the world trade order through retaliatory measures.
Since the U.S. economy has a relatively low reliance on external trade, Trump’s expansionary actions would likely work positively for the world’s largest economy for the next one or two years. But the country’s mid- and long-term outlook would become murky due to its widening fiscal and current-account deficits and removal of financial regulations, which eventually could pose a risk to the U.S. and global economy.
Therefore, we must expedite restructuring to strengthen our economic fundamentals and establish stronger international networks through proactive economic diplomacy to raise the credibility of our economy. Korea also must ensure a strong alliance with the U.S., which is pivotal in leveraging against the geopolitical risks inherent on the Korean Peninsula.
Korea’s aspiring leaders need to draw lessons from the aggressive Trump doctrine ahead of our next presidential election. In fact, the radical tax cuts and infrastructure spending that could push up inflation would, in the long-term, do more harm than good to the uneducated and low-income white American working-class that was behind Trump’s triumph. That is the fallacy of populist democracy.
There are many cases of how populist policies have been more detrimental to the working class. Korean society is particularly vulnerable to sensationalism spread through the Internet and traditional media should be more alert. The media’s role based on hard facts has become more important than ever.
The British vote to leave the European Union and Trump’s victory have underscored the side effects of globalization and a macroeconomic focus on growth as well as the need for attention to weak companies and underprivileged workers, a widening gap in productivity, income and wages, and complaints of the middle class sinking into poverty because of income stagnation. That calls for some reflection on the part of economic policymakers and a generational change in their policy paradigm. This applies to Korea as well.
Strong social security is necessary to defend workers. Our educational system must be overhauled so that workers can train for new skills in life in a market with more flexibility and mobility. There’s no question that many jobs we rely on now will not be with us in the future. Laws and social customs must be retooled to accommodate the dramatic changes coming with the advent of the so-called fourth industrial revolution.
Our political reforms must be focused not only on the power structure, but also the general election law to advance our legislative system. Experts with knowledge and experiences in various fields should be allowed to join politics and participate in lawmaking. The times also call for revisions in our current electoral and proportional representation system.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Jan. 11, Page 28