New strategies needed to tackle trade risks

Yoo Myung-hee
The author is a former trade minister.

I couldn’t entirely welcome the news that the United States became the biggest surplus-making trade market for Korea for the first time in 21 years due to a surge in exports last year. Having had to deal with a renegotiation on a bilateral free trade agreement (FTA) six years ago after the Donald Trump administration blamed the FTA for the large trade deficit with Korea, I cannot but fret about what bill Trump may charge if he succeeds in retaking power in the November presidential election.

Since 2024 is gearing up to be a record-breaking election bumper year, geopolitical risk should be most watched among multiple headwinds engulfing the global trade environment this year. On top of the drawn-out wars in Ukraine and Gaza in the Middle East, as many as 76 countries have elections this year, starting with the presidential election in Taiwan on Jan. 13.

U.S. President Donald Trump, left, shakes hands with Chinese President Xi Jinping at the end of a press conference at the Great Hall of the People in Beijing on Nov. 9, 2017.

For the past decades, the global economy had been relatively safe from political and security upheavals as it was guided by separate norms and multilateral platforms. But that has been upended by the strategic contest between the United States and China. Today, political and security issues overrule economy and trade. Election results in major countries could bring about huge changes and repercussions on the global trade order. The consternation could be huge if Trump wins in November.

Under the previous Trump term, Washington demanded a revisit to the FTAs or invoked various trade restrictions against surplus-making trade partners by claiming that the red in the U.S. trade account endangers national security. Korea’s surplus with the United States expanded 2.5 times over the past six years after the two countries entered negotiations on their FTA. How should Seoul deal with Washington under such circumstances if Trump returns to the White House? Korea must prepare countermeasures under various scenarios as the United States would certainly mount pressure on any items in which the United States loses big money.

At the same time, Korea must keep tabs on the Global South, which refers to the less developed or developing countries. The country could overlook networking with longer-term partners if it becomes too engrossed with trade upsets and challenges from political changes in the United States. Seoul must have eyes on the Global South, which has emerged as the third zone to maximize interests from the chasm in supply chains of the United States and China.

The realignment in global supply chains starting with high-tech and eco-friendly industries will continue to play out. In the meantime, traditional value chains will be further dismantled amid apparent tit-for-tats between the United States and China to contain one another. India, Indonesia and Vietnam have been increasing their trade with China and the United States, rising fast as the alternative markets for supply diversification. Korea also must strengthen cooperation with these countries in rebuilding the value chain.

Then there is the rising risk of trade barriers in the name of climate change response. A series of restrictions introduced last year would be just the prelude. More will rush out this year. Countries’ responses to climate changes coupled with the overhaul in their industrial policy and supply chains are fanning protectionist trade barriers. After the United States enacted the Inflation Reduction Act in 2022, France similarly drafted the Green Industry Act, and the European Union introduced the Carbon Border Adjustment Mechanism last year.

After China has come to dominate the solar energy and electric-car sectors, advanced countries cannot but devise multipurpose policies. During the global election year in particular, protective measures to defend and promote local industries in a way to mitigate climate-related risks while containing Chinese dominance will flood out to plead better to voters. Where will Korean products stand under such circumstances?

A senior U.S. trade official whom I had dealt with for negotiations told me that Korean products always popped up when Washington went out to regulate Chinese products. Korea must read the clashes in climate and trade policies to take pre-emptive actions.

Since trade is the main driver of the Korean economy, trade policy must prioritize exploring sustainable markets overseas. The other major pillar is technology development. As major economies are going all-out to strengthen their manufacturing sector and global supply chains are being reshaped in blocs, trade policy also must focus on consolidating our competitiveness in core technologies. We must come up with a new trade strategy of expanding our network to harness our market and technology power while preparing for the fluctuating trade challenges so that we can pre-emptively respond to new trade barriers.

Translation by the Korea JoongAng Daily staff.