‘Doing our homework is the best preparation’

Jun Kwang-woo
The author, a former chairman of the Financial Services Commission, is chairman of the Institute for Global Economics.

The big election year past its halftime has been reshaping the political order around the world. Surprising election outcomes in the United Kingdom, France, India, Mexico and Iran imply seismic changes in the international political landscape. The universal features of extreme polarization and uncertainties are exacerbated by the run-up to the November presidential election in the United States. A second Trump presidency has become viable as a result of last month’s TV debate between the sitting president and his predecessor and an assassination attempt on Republican candidate Donald Trump.

As Trump forewarned reinforcing the “America-first” mantra in his second term, Korea urgently needs to pump up its muscles and resilience for self-survival on the security and economic fronts. In order to raise the country’s standing in diplomacy and security, we must strengthen our economic fundamentals and structure. Strengthening military and diplomatic power also requires economic power during rapid geopolitical transitions.

A second Trump presidency poses serious challenges to countries around the world, including Korea and other Asian states, given the unpredictable and hawkish foreign and economic policies during Trump’s first term. Pre-emptive attention should be prioritized on two areas — security and economy/trade. On the security front, Korea must focus on bolstering the free democracy alliance among Korea, the United States and Japan, diversifying the security cooperative networks and reinforcing Korea’s self-defense capabilities. On the economic and trade front, the domestic economy and competitiveness must be strengthened, and trade/investment networking should be expanded through multi-governmental channels, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The economy must become strong to weather the complicated storms on the horizon.

Lawrence Summers and Joseph Stiglitz — who both served as senior vice president and chief economist of the World Bank — share the view that Trump in his second presidency could intensify a trade war through his isolationist and protectionist policies. Summers, former president of Harvard University and former treasury secretary under Bill Clinton, fears that Trump would drive prices higher as tariff hikes will push up import costs and fuel inflation, upsetting the central bank’s path to interest rate cuts. Stiglitz and 15 other Nobel-winning economists said they are “deeply concerned” about the risks a second Donald Trump presidency would have for the U.S. economy. “Many Americans are concerned about inflation, which has come down remarkably fast. There is a rightly worry that Donald Trump will reignite this inflation, with his fiscally irresponsible budgets,” they wrote. Goldman Sachs also predicted that Trump 2.0 could lead to as many as five rate hikes from the Federal Reserve.

German Finance Minister Christian Lindner has good advice worth listening to. “Doing our homework is the best preparation for a possible second term of Donald Trump and this includes our capabilities to defend ourselves,” he said. The finance minister suggested that each country must tend to its urgent tasks to raise competitiveness to be better prepared for external shock waves. Strengthened economic fundamentals and competitiveness will build resilience. The deferred reforms must be acted out to upgrade political and economic systems.

The incumbent government has set the right direction of stimulating dynamism in the economy, but its focus must go deeper to the fundamentals. Korean stocks are among the worst performers in the world despite the value-up programs. Without fundamental structural reforms, the economy cannot save itself from the sinking potential growth rate or guarantee sustainability and fiscal recovery. Reform on the national pension that has been adding 150 billion won ($108 million) in deficit every day must be expedited. Samsung Electronics grappling with its first-ever general strike when every second is valuable in the AI race urgently calls for labor and regulatory reforms. The next two years sans a major election are a golden time for structural reforms.

Politics must regain order to reignite the growth engine for the economy. The opposition’s exploitation of majority power to abuse the legislature for its selfish purposes — and the loathsome scenes ahead of their national conventions to elect the new leadership of the governing and opposition parties — stoke disgust and anger. The mud-fight politics driving away local and foreign investors are harming national image and credibility and causing capital flight.

We must exercise abstinence toward cash-backed populist policies to energize the growth engine sinking under the historic levels of national debt and the abysmal demographic structure. We should remember that a leader who prescribes bitter medicine is a true caretaker.

We are moving toward an inflection point where negative growth can become the new norm for Korea. To avert the path to doom, we need a bipartisan push for structural reforms and legislation to address economic and livelihood woes. We can strengthen our alliance with America and other free democratic countries and sustain a healthy relationship with China and totalitarian states only when our identity in free democracy and market economy is pronounced through stronger security and economic power.

Translation by the Korea JoongAng Daily staff.