Trade storms from Trump’s re-election

Lee Sang-ryeol
The author is an editorial writer of the JoongAng Ilbo.

It seems that 2024 is the year of elections. More than 40 countries will hold national-level elections next year, according to Bloomberg Economics. The countries account for 41 percent (3.2 billion) of the global population and 42 percent ($44.2 trillion) of global GDP. Korea will also hold a nationwide parliamentary election on April 10. The results of the elections will rock the politics and economy of the world in the coming year.

Some of the elections draw particular attention from the international community. They are the Taiwanese presidential election in January, the Russian presidential election in March, and the Indian parliamentary elections in April and May. But most important is the U.S. presidential race in November. The results of that election can fundamentally shake the existing political and economic order of the world.

First of all, the results of the Jan. 13 presidential election in Taiwan will be the litmus test of the heated U.S.-China war over global hegemony. If the governing Democratic Progressive Party (DPP)’s candidate Lai Ching-te, who champions Taiwan’s independence, wins the election, it will raise the tension in the volatile strait to escalate the Sino-U.S. confrontation even further. Heightened geopolitical risks of Taiwan will have a grave impact on the security of South Korea. But if pro-China candidate Hou Yi-ih of the Chinese Nationalist Party (KMT) or moderate Ko Wen-je of the Taiwan People’s Party (TPP) wins the race, the tension will ease significantly. In that case, what position Taipei will take after faithfully complying with the U.S. demand for the chip blockade on China will draw our attention.

Russian President Vladimir Putin will surely extend his term in the March election, given no signs of his weakened grip on power. But Russians have suffered much from the protracted war with Ukraine and economic sanctions from the West. Depending on how much support he can get from voters, the drive for the unjustified war can gain traction or not. If opponents outnumber supporters, Putin may have to pay more heed to domestic control than the war fronts in Ukraine.

In the Indian parliamentary elections between April and May, the United States, China and Russia are on full alert over whether current Prime Minister Narendra Modi and his Bharatiya Janata Party will win. Under Modi’s reign, India has aggressively joined the U.S.-led sanctions on China even though it is a core member of the BRICS together with Brazil, Russia, China and South Africa. India is also the pivot of the Indo-Pacific Economic Framework (IPEF) led by U.S. President Joe Biden. Global attention is focused on the November U.S. presidential election which is apparently converging into a battle between former President Donald Trump and the current president. If Biden wins, the international order, political and economic, will likely stay the course — in other words, the “de-risking” phase will continue in the U.S.-China relations in particular. In his recent summit with Chinese President Xi Jinping in San Francisco, Biden made clear his intention to keep the ban on semiconductors and other cutting-edge products for China.

But if Trump is re-elected, it will be a different story. The Economist wrote, “Donald Trump poses the biggest danger to the world in 2024.” The magazine pointed out that if Trump returns to the White House, his push for retaliation and trade protectionism will thrust the global economy into large scale chaos as he will certainly revive his campaign slogan “Make America Great Again.”

Former U.S. President Donald Trump speaks at an annual meeting of the Face and Freedom Coalition, a conservative political advocacy group, at a convention hall at the Washington Hilton, Jun. 24. [SHUTTERSTOCK]

In the trade policy he released in February, Trump would adopt a plan to rid China of its most-favored nation status and stop the import of all daily necessities from China in phases over the next four years. The policy even contains a ban on U.S. companies from making contracts with the federal government if they outsource to China. That means Trump would pursue a full-fledged decoupling from China and sever normal trade relations with the country.

In particular, the Trump camp is mapping out a drastic plan to impose a 10 percent “universal baseline tariff” on all imports. Currently, the average import tariff rate is about 3 percent in the United States, but Trump would more than triple the rate “universally.” That will prompt inflation and provoke retaliatory tariffs from foreign countries. The war of high tariffs will not only bring the global economy — which has barely recovered from high inflation since the Covid-19 pandemic — back into the cycle of high prices, but also will open a new chapter in the ominous trade war.

You can hardly dismiss the Trump plan as a bluff. He triggered a tariff war by levying high tariffs on Chinese imports worth tens of billions of dollars while in office from 2017 to 2021. The trade war persisted into the Biden administration. According to AP, U.S. tariffs on Chinese products soared from 3 percent in early 2018 to more than 19 percent today. In the meantime, China’s tariffs on U.S. products surged from 8 percent to 21 percent. Trump replaced the North Atlantic Free Trade Agreement (NAFTA) with the U.S.-Mexico-Canada Agreement (USMCA) and forced the United States to withdraw from the Trans-Pacific Partnership (TPP). Trump threatens to immediately scrap the IPEF trade initiative, if re-elected. Such a protectionist move will deal a critical blow to small open economies like Korea.

Under Trump, climate action, including an increase in EVs, is also expected to decline. In September, the former U.S. president vowed to repeal the energy tax credits specified in the Inflation Reduction Act (IRA) on his first day in office if he is re-elected. He also would suspend the Biden administration’s plan to replace two thirds of all new car sales with EVs by 2032. Some analysts say it would be difficult for Trump to entirely scrap the subsidies for Korean EV and second-battery makers, as their plants are located in Republican-dominated states. However, considering Trump’s recognition that EVs only benefit China — and the United Auto Workers’ antipathy toward electric cars — he will most likely amend, if not repeal, the IRA and put the brakes on the growing EV market. That poses a serious challenge to Korean battery producers who get the subsidy from the IRA.

Still, one year is left until the U.S. election. Sometimes the occupant of the White House changes the economy, but at other times the economy changes the occupant of the White House. According to JP Morgan, incumbent presidents have around a 75 percent chance of re-election since 1912 unless the economy was in recession until two years before the election. In other words, the election was mostly advantageous for the active president. But if something happens in the economy, a dramatic reversal can occur. In the 2020 election, held at the height of the pandemic, Biden defeated the incumbent president, Trump. In the 2008 election, the global financial crisis led to the victory of Barack Obama from the opposition party.

Recent polls show Trump leading Biden, but election experts forecast a neck-and-neck race in November. Biden stresses economic achievements exemplified by the creation of 14 million jobs since his inauguration and a jobless rate less than four percent for 21 consecutive months. Through the IRA and the Chips and Science Act, he revitalized the economy by attracting massive investments from companies at home and abroad. But such accomplishments have stopped short of winning the hearts of the voters primarily due to inflation. The consumer price index fell to 3.2 percent in October after spiking to 9.1 percent in June last year. Nevertheless, prices are still at the highest level in a decade.

Consumers sensitively respond to changes in the real purchasing power for gas, rent, food and other essential goods. Research by the Brookings Institution showed a decrease in U.S. household income last year. For instance, the median household income shrank by 2.3 percent to $74,580 in 2022 from $76,330 in 2021. Seven out of 10 families experienced such an income reduction in the United States. The economy is supposed to help Biden’s re-election, but the tail wind may not be strong enough this time, Politico pointed out.

If Biden wants to get decisive support from the economy for his re-election, prices must fall and a recession must be avoided. But that’s not easy. It remains to be seen if the Fed’s policy will lead to a soft landing of prices and the economy. Oil prices also must be stabilized. To make it happen, the instability in the Middle East from the Israel-Hamas war must not trigger a surge in international oil prices. That’s why the United States is aggressively intervening in the war.

The global economy for 2024 and beyond will depend on the results of those elections. Particularly important is the U.S. voters’ decision, which will certainly be swayed by the condition of the U.S. economy until Election Day. The clock is ticking.