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Brace for Trump’s economic policies

Published: 07 Nov. 2024, 20:02

The Korean economy is under dark clouds as it faces the second presidency of Donald Trump who has vowed not to rest “until we have delivered the strong, safe and prosperous America.” The beggar-thy-neighbor policies to favor domestic goods over imports with protectionist policies such as tariffs and quotas can devastate export-reliant economies like Korea’s.

Trump has warned of blunter “decoupling” from anything related to China by slapping as high as a 60 percent universal tariff on imports from China and restricting across-the-board economic exchanges, including financial investments and research and development (R&D) activities. The move will adversely affect Korea whose trade with China — its largest trade partner — mostly involves intermediate components for finished products in China to be sold in the United States and other countries.

Trump’s America First policy also could translate into heavier trade pressure on surplus-making exporters like Korea. Korea’s surplus in trade with the United States reached a record $44.4 billion last year and $39.9 billion as of September this year. According to the Korea Institute for International Economic Policy (KIEP), Korea’s exports to the United States could be reduced to $30.4 billion and its total exports to $44.8 billion if Trump imposes a 20 percent tariff on all imports from Korea during his second term. Given Trump’s uniquely maverick ways, the Korea-U.S. Free Trade Agreement that entered into force on March 15, 2012 will likely be revised in America’s favor. We must not waver in defending our national interests.

Economic experts warn that inflation can spike up during Trump’s second term due to increased fiscal spending, trade protectionism and strict immigration policy. The yields of U.S. Treasuries and the dollar also will shoot up. A strong greenback will weaken the Korean won and fuel volatility in the forex market. The won has already depreciated, and Korean shares weakened on foreign selling after Trump was declared the winner of the Nov. 5 election. A high exchange rate between the Korean won and the U.S. dollar can harden the Bank of Korea’s pivoting toward a loose monetary policy, together with mounting household debt and housing price uncertainties. Authorities must have all hands on deck for economic management in the tumultuous climate.

Trump has vowed to revisit current President Joe Biden’s signature policies like the Inflation Reduction Act and the CHIPS and Science Act — which can baffle Korean companies who invested billions of dollars in the country to take advantage of the incentives specified in the two acts. Our government must do its best to protect the interests of Korean companies by reminding its U.S. counterpart of the escalated bilateral relationship on the economic and technological front.