Bracing for trade conflict

The Jeju Forum for Peace and Prosperity is one of the established annual conferences in East Asia. It brings together political and business thought-leaders to address pending and future issues concerning co-prosperity for the global community. The 13th meeting that ended on Thursday after three days invited thinkers from around the world to share their insights about world affairs on the theme of “Reengineering Peace for Asia.” Nobel Price-winning economist Paul Krugman spoke on the ongoing global trade war between the two superpowers – the United States and China – and its impact on the global economy including Korea. As author, economist and op-ed columnist for the New York Times, he has written extensively on international trade and finance.

The outspoken critic of trade protectionism said a trade war is like an arms race “in which everybody wastes a lot of resources and ends up in the same place, except just poorer. Everybody ends up being worse off.” Big economies are less vulnerable, but a full-fledged trade war led by the United States that could trigger tariff hikes of up to 40 percent and reduce global trade by two-thirds around the world could be bad for Korea, he warned.

He predicted the world could become as poor as in the 1950s as the result of a trade war. Korea would end up amongst the heaviest or even fatally bruised. It would have to kiss good-bye its goal of achieving $1 trillion in trade this year for the second year in a row. About a quarter of Korean exports go to China. Since Chinese products shipped to the U.S. rely on Korean parts and intermediary goods, Korea Inc. would be caught in the crossfire.

The shaky external environment has darkened prospects for the second-half of the year. Capital investment, which represents domestic demand along with consumption, fell for the third consecutive month, according to May industrial output data released on Friday. The consumer sentiment index that reflects confidence in the economy in June sank for the third month in a row.

The Korea Development Institute lowered its growth forecast to below 3 percent for this year and next. Investors have turned jittery and been dumping shares after the U.S. Federal Reserve raised interest rates. The Kospi fell below 1,300 points Friday and the U.S. dollar jumped over 1,100 won for the first time in seven months. The Korean won has been losing ground fast.

The government must stimulate corporate investment and raise external competitiveness to strengthen our resilience against any shocks. President Moon Jae-in must start taking the ongoing trade war seriously. New senior secretary for economic affairs Yoon Jong-won must assist and guide the president well.

JoongAng Sunday, June 30, Page 34