Retooling trade policyTrade policy is being neglected by our presidential candidates even as U.S. President Donald Trump threatens to raise trade barriers to protect local industries and jobs and China inflicts all-out retaliation on Korean brands for Seoul’s decision to accept the U.S. Terminal High Altitude Area Defense (Thaad) antimissile system.
Our economy fundamentally relies on trade and has entered the ranks of G-20 economies through exports. And yet our presidential aspirants do not pay attention to the challenges and dangers on the trade front. It shows how narrow-minded and complacent our political leaders are. While Korea is mired in the middle-income trap — still far from the $30,000 per capita income threshold — our slow-moving growth could come to a standstill without a significant push on the trade front.
Since the first free trade agreement with Chile was signed by President Kim Dae-jung, presidents Roh Moo-hyun, Lee Myung-bak and Park Geun-hye have pursued free trade deals with as many countries as possible, even those with very different ideological stances.
Trade has disappeared from the campaign trail due to disillusionment over FTAs. The country has bilateral free trade deals with over 50 countries, but they have failed to help small and mid-sized enterprises. That generated complaints and resentment from merchants and farmers over cheap imports. Out of fear of angering them, politicians running for president have turned away from anything to do with trade.
This is a major retreat for the country.
There are ample opportunities on the trade front. Presidential contenders roll out run-of-the-mill promises to spend tax money to create jobs for young people because they still think about exports and domestic demand separately. The economy will only become more dysfunctional if young people have a single option to turn to the public sector for jobs.
Policy on exports and domestic demand need to be interconnected. The country has a future when there is a mix of policy aimed at reviving domestic demand that has been stagnant for nearly a decade as well as combating trade challenges. The starting point should be retooling trade policy.
Korea’s trade policy has been entirely devoted to serving the mainstay exports of electronics, semiconductors, steel and ships. This must change. To build resilience against external factors, we must come up with a growth engine we can have greater control over. We must expand domestic demand — restricted to 50 million Koreans — to incorporate demand in markets within a two-hour’s plane ride.
The economy will provide greater opportunities when it draws in Japan and China. If Korea appeals to them in shopping, dining, entertaining and healthcare, we would be able to enhance growth and increase jobs. Making Korea a destination for culture, entertainment, tourism and medical services would solve many of Korea’s problems.
But that goal remains distant due to a myriad of regulations choking the services sector. If regulations are not lifted, the country will lose a big opportunity to grow in a more balanced manner. A true leader should be bold enough to address the over-concentration of self-employed businesses in retail, lodging and restaurants. They are hurting one another fighting over a limited market.
A leader must try to show them a new path so that they could move onto a bigger ocean. Stimulating a big bang in the services sector is a policy that could win votes if the presidential candidate can persuade voters that this is a path to symbiotic growth. Instead of trying to sell products overseas, we must focus on drawing overseas capital, consumers, technology, and human and technology assets to Korea.
Although trade with China is being damaged from the diplomatic conflict over the Thaad deployment, Korea in the longer run must strengthen economic relations with China. If Seoul included services and investment guarantees in its FTA with China, Beijing could not have taken such unilateral actions on trade with Seoul. Korea must further advance its trade relationship with the world’s biggest trade powerhouse and consumer market. Seoul also must work harder to solve air pollution from China through trade diplomacy.
Japan lost the last two decades to zero growth, but it still maintains top-class technology and a lot of capital. It may be able to reclaim its past glory in the fourth industrial revolution. Korea must capitalize on its geographic proximity to those two valuable markets for trade gains. If it takes the initiative to build a common East Asia market by connecting the two economic powers, Korea in the center would turn into an attractive, dynamic, and open market.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Web only, March 6
*The author is a professor and former dean of the Graduate School of International Studies at Ewha Womans University.