Facing free trade’s end
The author, former chief economist at the Asian Development Bank and a senior adviser for international economic affairs to former President Lee Myung-bak, is a professor of economics at Korea University and president of the Korean Economic Association.
Globalization had been a pillar in the 20th century global economy. Cross-border economic exchanges and mutual dependency deepened through opening and integrated the global economy. New products, services, capital, labor, technologies, systems and culture traded in lively manners as economic activity expanded beyond the borders.
Opening and globalization brought about prosperity. South Korea, China, and other emerging economies joined the liberal international economic order and prospered through trade. They focused on industries with comparative competitiveness in large markets, produced greater output in an efficient manner, and adopted advanced technologies to raise their productivity. Not all benefited equally from globalization. Political and social conflict deepened as disparities in income, wealth and opportunities widened between the classes that benefited and didn’t.
Increased cross-border exchanges and economic integration helped to sustain global peace. British philosopher and economist John Stuart Mill advocated trade expansion for world peace. When trade reliance increases among countries, losses from a cease in trade could become bigger, strengthening the grounds to avoid a military clash.
Enterprises depending on trade would exercise influence over their governments to solve issues diplomatically instead of by military force. Neighboring countries with greater likelihood of clashes along the border sought economic integration to mitigate the danger. Europe in 1951 integrated coal and steel industries after two world wars to set the path for union.
But trade between nations with unparalleled power could worsen the risk of a military conflict. Historically, global powers raised armies to gain bigger ground in trade. Energy resources like oil often caused military strife. Still, as data shows, cross-border trade contributed to diminishing wars and promoted peace.
The United States since World War II led an international economic order based on liberalism. The General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) were formed to set rules on international trade. The International Monetary Fund (IMF) and the World bank have overseen orders in global finance, investment, and currency. But the international bodies led by U.S. and other developed economies lost credibility due to their lacking response to global issues, such as trade, technology standards, security, economic crises and development.
Former U.S President Donald Trump shook the globalization and free trade order with his “America First” slogan and trade protectionism. High tariffs were levied on steel and aluminum imports on national security grounds, and China was sanctioned for alleged unfair trade practices and intellectual property theft. In the past, the U.S. also invoked protectionist actions and regulated key steel, automobile and other imports often. But under Trump, the U.S. administration took punitive actions without thorough negotiations with countries subject to sanctions. The Joe Biden administration is keeping up the trade and technology war with China.
Geo-economics refer to the study of the geography on domestic and international economics or employment of economic means to achieve geographic goal. Strategy expert Edward Luttwak was among the first post-Cold War contributors to the idea that economic affairs could govern the future of geographic competition more than military power. Governments attempt to achieve their national goals through trade, investment policies, economic and financial sanctions, energy and raw materials trade and overseas aid rather than through military means.
China has been expanding its influence in underdeveloped countries through an infrastructure and development aid program known as One Belt One Road. It took a retaliatory economic action on South Korea after it installed the U.S. Thaad antimissile system. Russia has been weaponizing energy resources for its strategic gains. It cut off gas pipelines to Europe over political disputes. The U.S. excluded Russian institutions from the international settlement system in a punitive action for the Russian invasion of Ukraine. America launched the Indo-Pacific Economic Framework to contain the rise of China and realign the global supply chain.
The deglobalization wave is out to destabilize the past international economic order. The Ukraine crisis and conflict between the U.S. and China are unlikely to end soon. The world is expected to face various conflicts in the future. Resource-rich nations could slam export curbs for national security reasons, and importers could take a protectionist counteraction.
These developments could be threatening to a South Korea that sustained prosperity through free trade. The government and companies must endeavor to diversify import channels and secure stable supply chains for parts and raw materials. They must reduce reliance on China and widen export markets. Prudent strategies to navigate through the perilous transition period can change the future of the Korean economy.
Translation by the Korea JoongAng Daliy staff.