Why Trump 2.0 is more alarming than before

SHIN MIN-YOUNG
The author is a visiting professor of economics at Hongik University.

Donald Trump’s election in 2016 was the starting point for the regression of globalization. Trade disputes, including high tariffs and corporate sanctions, between the United States and China have spread since the 45th President took office in 2017, beginning with an investigation into China’s intellectual property infringement. Trade disturbances have impaired the vitality of the global economy.

The Korean stock market, which is highly open, fell by 9.3 percent in the period between January 2018, when the United States placed heavy sanctions on China, and March 2020, shortly before the spread of Covid-19. The local bourse was particularly vulnerable compared to the U.S. stock market, which rose by 24.8%, and Japan’s, which grew 3.1%.

Trump is the most promising candidate in next year’s U.S. presidential election. He has announced a plan to impose a 10 percent universal tariff on all imported goods, more than triple the current 3 percent. The Economist on November 16 named Trump’s chance of victory as the biggest global threat in 2024. That is quite a convincing diagnosis, as policies of the second Trump administration will likely have a bigger impact on the Korean economy than during the first term.

First of all, China — under the strong leadership of President Xi Jinping in his third term and with a greater economic power than before — will most likely respond to the Trump administration’s check more strongly. China has succeeded in developing cutting-edge chips and has secured world-class competitiveness in the secondary battery industry. China’s GDP accounted for 63 percent of the U.S.’s in 2017, but it has grown to 76 percent in 2021 and is likely to reach 90 percent of America’s by 2025.

Moreover, China’s domestic and international economic conditions have weakened. The global economy’s growth rate as it emerged from the European fiscal crisis was in the low-to-mid 3 percent range between 2016 and 2017. It is expected to grow by around 2 percent in 2023 and fall to the low 2 percent range in 2024. Due to inflation and increasing fiscal spending, concerns about a recession are deepening in major economies, including that of the United States. Trump’s merciless flexing of his muscles under such circumstances will likely deal it a fatal blow.

Lastly, Trump 2.0 is a prepared government. The first Trump administration did not have sufficient talents and acted chaotic because his victory was unexpected. The second administration may take a more systemic and strategic approach than its predecessor did, holding firm control of the bureaucracy and a strong grip on power. Proponents of America First at Trump-loyal think tanks have already prepared thousands of pages of policy materials.

The Korean economy has been noticeably weakened — especially in financial markets, from mounting household debt and insolvent project financing — amid a sluggish economy and high interest rates. On top of that, Trump’s possible re-election and unpredictable policies will only add uncertainty. A second-term Trump will surely have a bigger economic impact than the first. That stands as a serious challenge to the future of the economy in 2024.