Weathering export control and protectionism
Published: 12 Dec. 2023, 20:02
Suh Kyoung-ho
The author is an editorial writer of the JoongAng Ilbo.
On Dec. 12, 1979, Chun Doo Hwan, then-major general and commander of the Security Command, took power through a military coup and imposed martial law, which led to the massacre of armed protestors in Gwangju against his dictatorship in May the following year. Three months later, he was elected president. During the peak of the military dictatorship in 1982, the biggest financial fraud erupted, led by a former lawmaker Lee Chul-hee and his wife Chang Young-ja.
Chang, dubbed the “queen of the underground loan market,” famously said the economy is all about circulation. As the schemer pointed out, money should flow smoothly to make the economy work. If the money bloodline is clotted, serious problems can occur.
Chang’s clever observation can be applied to the blocked distribution of urea in Korea. Concerns are deepening after the urea shortage from China’s export curbs two years ago. The government is acting more promptly this time. It has secured additional stock from three urea exporters other than China to withstand the shortage for up to 4.3 months instead of three months.
Some insist that Korea produce urea on its own to become freer from China’s whims. But Korea stopped making the chemical compound — used for fertilizers and in exhaust fluid for diesel vehicles — over a decade ago. Actually, Korea used to house the world’s largest urea factory in the 1960s. Samsung Group’s founder Lee Byung-chul established a fertilizer factory in 1967 as he saw money in fertilizer when food security mattered most after the Korean War.
But Korea could not compete with China, which could extract the chemical from cheap coals whereas Korea relied on imported naphtha. Samsung Precision Chemical — now Lotte Fine Chemical — folded its urea business in 2011 due to growing losses. It all comes down to money, whether Korea taps other cheaper suppliers or resumes urea production at home. It could be more effective to subsidize urea imports costing more than Chinese products. Authorities must strike a delicate balance between stable supply and cost for strategic commodities.
The concept of economic distribution no longer applies to international trade these days. The United States and other major economies gladly accommodate trade protectionism. Just look at the U.S. Chips and Science Act and the Inflation Reduction Act. The moves confound a dutiful follower of the free trade order, like Korea.
The Economist recently ran an article expounding on why free traders should form an alliance with environmentalists. The magazine delivered the changed environment at the UN Climate Change Conference (COP28) in Dubai. The 1999 World Trade Organization (WTO) meeting in Seattle was tainted by the “Battle of Seattle,” where environmental protestors vehemently clashed with the riot police outside the venue.
But the WTO, the champion of free trade, received a different treatment at the COP28 in Dubai and the 2021 COP28 in Glasgow, Scotland. The COP28 this year even featured an event called “Trade Day,” where the WTO pitched hard on how free trade could speed up the green transition.
Trade protectionism takes a dear toll on the economy and the environment. For instance, more fossil fuels would be exhausted to bring urea from a farther location. The shipping and production cost goes up. The facility to generate renewable energy even pays a 3.2 percent tariff, four times greater than the one charged on crude oil, due to trade barriers. Tariffs on electric vehicles are 1.6 percent to 3.9 percent higher than conventional cars. Due to non-tariff barriers such as offering preferential taxes on domestically-produced automotive parts, local production costs go up, hampering decarbonization efforts.
The supply chain disruptions are an unavoidable external risk Korea must endure from the ongoing U.S.-China hegemony competition. Korea must strengthen supply cooperation with allies and usher international endeavors to restore the free trade order. Regardless of the paradoxical circumstances, Korea must continue to champion the free trade principle. The world is changing. But conservative free traders and liberal environmentalists can find themselves in the same boat. That may arrive as suddenly as the Dec. 12 coup in Korea 44 years ago.
with the Korea JoongAng Daily
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