Age of ultra-uncertainties
The author is a professor of economics at Korea University.
While on patrol in the waters of the South China Sea, a U.S. Navy destroyer equipped with the Aegis Combat System is encircled by a fleet of Chinese fishing boats and militia ships and one of its sailors is detained. The U.S. government warns of strong action, but is paralyzed by the complexities of the situation ahead of a presidential election. The Economist published this scenario set in October 2020 in its July 4 edition to describe how the two superpowers’ trade conflict could build up to a military clash. A hegemonic struggle could pan out in the South China Sea, Taiwan and the Korean Peninsula.
The two could avoid the worst scenario of a military clash. But they won’t easily back down on the contest for supremacy in trade and technology. The United States won’t allow state-controlled China to wield predominance in military and technology power. President Xi Jinping championed the Chinese dream to become the center of the world. Beijing launched a national campaign called “Made-in-China 2025” to turn the country into a powerhouse in high-tech manufacturing by 2025.
The United States and China have been engaged in a trade war involving tit-for-tat tariffs. Washington tightened controls so that high tech does not go into China. Tensions reached a new level earlier this month after U.S. President Donald Trump vowed to impose 10 percent tariffs on $300 billion worth of Chinese imports. Beijing in return ordered a ban on agricultural imports from the United States. When China eased its 7 yuan-$1 peg held intact since 2008, Washington declared the country a currency manipulator. The global markets rocked on fear of the conflict extending to a currency war. If China allows its currency to weaken against the U.S. dollar, higher cost of exports from U.S. tariffs could be offset to some extent. The label currency manipulator grants Washington additional grounds to slam more tariffs on Chinese products.
Tariff barriers from the United States won’t shake China as China’s exports take up 19.5 percent of its gross domestic product and its shipments to the United States account for 15 percent of its total exports. But sluggishness in exports would dampen investment, productivity and distribution. China aims to keep up a GDP growth rate of 6 percent through fiscal and monetary expansion until the centennial anniversary of the Communist Party in 2021 and the National Convention in 2022, when it would have to select new leaders. But if protracted, a loose fiscal policy could be risky with an already-oversized debt in the private sector and among provincial governments. The International Monetary Fund (IMF) has warned China of a financial crisis if it keeps up aggressive expansion without stringent regulation and supervision in the financial sector.
The two countries may enter a cease-fire to lessen the damage to their respective economies. But the supremacy contest will go on, influencing the global trade order. The post-war multilateral trade order designed by the United States has come apart. Instead, nationalism, protectionism and anti-globalism have become the new norms. This age of “ultra-uncertainties” may go on for the next decade or longer.
Korea — with vulnerabilities to external factors and inner structural weaknesses — will inevitably take a hit from changes in the global market. Korea is an open economy that is influenced by global demand. At home, it grapples with colossal household debt, weak industries, a rigid labor market and not-so-productive small- and mid-sized industries. Waning productivity has cut down growth potential and yet the government has been slow to action.
We cannot do anything about global trends. But we must do what we can to minimize damage. We must carry out structural reforms, tend to weaknesses in various corners and increase productivity and innovative capabilities. The government must strengthen ties with major powers at times of escalated geopolitical risks and build up bilateral and multilateral trade agreements and currency swaps. We must have as many friends as possible during troubled times.
The Swahili phrase “Hakuna matata” means “no worries” and is the theme of a song in the Disney film “The Lion King.” Meerkat Timon and warthog Pumbaa teach young cub Simba to forget a past that cannot be changed and instead live in the present. The film has a happy ending for Simba, but the field has become a tougher place to live for the animal kingdom. In a jungle where only the strongest can survive, smaller animals have a tough time. Troubles are everywhere. We must muster our resources to overcome the challenges together.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Aug. 22, Page 31