Xi versus Trump
The World Economic Forum invited Chinese president Xi Jinping to this year’s Davos gabfest, expecting him to support globalization. In fact, China did pull 6 billion people from absolute poverty in one generation and became the second largest economy in the world thanks to opening to the world and the forces of globalization.
In terms of rhetoric, Xi did not disappoint the canape crowd at Davos. “Pursuing protectionism is like locking oneself in a dark room … We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening-up and saying no to protectionism.” Yet, whenever Xi emphasized globalization, he never failed to include the modifier “economic.” He must have been conscious of China’s unceasing efforts to keep the Chinese people in a “dark room” politically and in terms of freedoms by restricting their access to foreign websites.
Xi’s rhetoric was quite different from Trump’s inauguration speech, in which he said, “Protection will lead to great prosperity and strength.” This is a new form of global leadership that would have been unimaginable until recently.
The problem is that while China’s reality will not likely keep up with Xi’s globalization rhetoric at Davos, Trump’s anti-globalization moves have been surprisingly swift and will continue for four more years. As a result, the existing world order is bound to be in confusion and uncertainty for some time.
Trump made it clear that the United States would not allow other countries to take advantage of America for their own interests or get a free ride on the existing international order. He underscored that unfair competition won’t be tolerated in the name of free trade anymore. He is apparently targeting China.
Trump wants to prevent unfair competition from lowering the competitiveness of the American economy — especially its manufacturing sector — and from taking away jobs as China’s government offers direct and indirect assistance to Chinese companies. Trump also desires to stop Beijing from intervening in the currency market and condoning subpar labor and environment conditions compared to international standards. His claims are not entirely groundless.
The United States has threatened to restrict imports from China with a border tax and tariffs. Of course, China is expected to retaliate with restrictions on American companies operating in China and modifying investments in American financial assets, such as treasury bonds.
The global economy may even fall into the “beggar-thy-neighbor” trap of the 1930s. After World War I, Great Britain, which had been the global superpower, lacked the competence to continue to lead the international order. The United States had no intention to provide such leadership. As a result, the 1933 London Economic Conference — at which 66 nations gathered to reach an agreement on international trade — failed and recovery from the Great Depression was delayed, which eventually led to World War II.
China still lacks the global leadership ability of America and has no intention to do so. Fortunately, the world has changed drastically from the 1930s. Thanks to globalization and the integration of the global economy, the possibility for serious trade and currency disputes is very low.
Nevertheless, it is certain that the global economic order will be unstable for a while, especially in the first 100 days of the Trump administration.
Therefore, Korea needs to swiftly prepare for several issues that Washington can pick on, such as “unlevel playing fields” and the Korea-U.S. Free Trade Agreement. It is appropriate that the government and the Korea Development Institute (KDI) have launched an extensive review of the export assistance program.
At the same time, it is urgent to set up and operate an inter-ministerial team in charge of trade — for instance, a special committee directly under the acting president. There has to be a trade policy-coordinating apparatus under a minister-level chief, where policymakers and experts in not just manufacturing but also finance, IT, law, medicine and investment can systematically work together.
The government also needs to be consistent in not only our trade relations with the United States, but also on other urgent issues such as a free trade deal with Japan. Korea also must respond solidly against unfair protectionist measures from major trading partners by bringing cases to the World Trade Organization if necessary.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Feb. 8, Page 28
*The author, a former finance minister, is an adviser to the JoongAng Ilbo.