Prosecuting the trade war
*The author is a columnist of the JoongAng Ilbo.
Prime Minister Lee Nak-yon’s implying of a cabinet reshuffle following the June 13 local elections has caused a flutter in the bureaucratic community. Wild talk is circulating about who could be replaced by whom. None of the rumors have any real grounds. But if there is one person that should be replaced, I believe it is Trade Minister Kim Hyun-chong.
Why? First of all, trade is a matter of life and death for the export-reliant Korean economy. South Korea has been hurt most by the trade barriers erected by the United States and China. Seoul has responded pitifully. It did not even attempt to file a complaint with the World Trade Organization (WTO) for Beijing’s unfair trade retaliation against our deployment of an antimissile system that would bolster our security against the North Korean threat. South Korea agreed to comply with quotas on steel imports that go against WTO rules. As a result, South Korea demonstrated that it could be easily pushed around by other countries.
Nationalistic leaders Donald Trump and Xi Jinping still have many years left in their terms. The Trump administration could continue for another six years if he wins a second term, and Xi’s term is effectively indefinite. The two tough leaders will likely pick on South Korea again and again. If the Moon Jae-in administration does not respond in a more effective way, the trade-dependent Korean economy could be wrecked.
The automobile sector is in the crosshairs. Last week, Trump ordered Commerce Secretary Wilbur Ross to launch a national security investigation into imported cars. A probe under Section 232 of the Trade Expansion Act of 1962 could lead to tariffs of 20 to 25 percent on automobile imports. If the Trump administration carries that out — as it did with steel — the toll on the Korean economy and auto industry could be huge. South Korea had an $18 billion surplus in trade of goods with the United States last year. In the trade of finished cars and automobile parts, its surplus was $18.1 billion. If automobile exports, which are currently exempt from duties under the 2012 Korea-U.S. free trade agreement, are hit with heavy tariffs, our trade balance would turn into a deficit. The bilateral FTA would become meaningless.
That’s not all. The repercussions on domestic industry could be catastrophic to the extent of ruining the entire local car industry.
Thousands of people would lose jobs and regional economies would be wrecked. Fortunately, there is still time. It took 11 months for Trump to sign off on the steel tariffs. Washington’s offense on automobile imports could be targeting Germany and Japan rather than Korea. But Trump can be harsh. He would not hesitate to make Korea a scapegoat for political gain. Seoul must send a strong message to defend its trade with the United States.
Second, the government needs to change its strategy on trade negotiations. President Moon told his trade team that security and commerce are separate issues when Seoul embarked on negotiations with Washington to revise the FTA and seek relief on steel tariffs. But Minister Kim has not lived up to his boss’ order to not have the North Korean nuclear problem spill over to the trade front. He returned home with little gain. The concession on quotas was the worst in his steel negotiations. South Korea cannot deal with the United States alone. It should have worked jointly with the European Union and Japan. Trump’s offensives come from all sides. The quota was Trump’s trap, and Korea fell right into it. The attack on the automobile front must be dealt with in a multilateral context. A new team must be ready to fight the heavyweight United States. The captain of the Korean team who led it to a shattering defeat should be replaced.
Third, Kim’s capabilities are in question. He vowed to face the U.S. negotiators with confidence. But he blinked when Washington threatened to kill the FTA. He gave into the U.S. demands, conceding even the foreign exchange operation, which is in the jurisdiction of the Finance Ministry, for the sake of saving the FTA and removing Korean steel from Washington’s list for immediate duties.
When exports slump, jobs will be lost and our currency value would depreciate. If the won’s value drops, national incomes will also shrink. There are many Koreans studying and working abroad. South Koreans are some of the world’s biggest overseas travelers. Exports must stay robust to sustain the value of the Korean won. If exports or trade sink, so would the government’s slogan of income-led growth.
JoongAng Ilbo, May 31, Page 30