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Three ways to prepare for Trump 2.0

Published: 02 Dec. 2024, 19:41

Heo Yoon
The author is a professor of international trade at the Graduate School of International Studies, Sogang University and an advisor to the JoongAng Ilbo’s Reset Korea Campaign.

Tariffs on imports and tax cuts for businesses at home make up the recipe for president-elect Donald Trump’s ambition to cook up a manufacturing renaissance for America Inc. He already vowed a string of tariff salvos — 25 percent on imports from its border neighbors, Mexico and Canada, and an additional 10 percent on top of existing duties on Chinese shipments. Trump is wagering on the power of tariffs, which he previously described as “the most beautiful word in the dictionary” — a kind of magical all-purpose lever to solve not just economic but also social problems such as immigration and drugs.

It remains to be seen whether he will carry out the threats, as tariffs had been a part of his playbook during his first term to coerce countries to meet his ways. If the tariffs do happen, he will be upending the United States-Mexico-Canada Agreement (USMCA) that he had midwifed to replace the NAFTA in 2020 during his first presidency. The collapse of a regional free trade framework spells trouble for Korean manufacturing majors like Samsung Electronics, LG Electronics, Posco and Kia Motors that built factories in Mexico for North American exports.

Trump is known to be a master dealmaker. He takes a liking if he approves of the first impression of his negotiating partner but can be merciless and ferocious in the opposite scenario. Trump fits into the typical lion-style leadership. If you come across a lion, you throw meat or other prey it may like. It would be worthless to convince a hungry ruthless lion that you are not worth eating. We need to build a high-level lag strategy by making sure the lion is indulged first and work on a piecemeal win-win situation.

Trump is bound to demand Seoul to pay a heavier price to host U.S. troops. He may even threaten to scrap a bilateral free trade agreement (FTA) if we don’t agree to pay more. He may revisit the Defense Authorization Act to scale back U.S. military presence in Korea. We need not fret over every move from Washington but keep eyes on the equilibrium on gains and losses in a big-picture framework. Korean companies’ Chinese operations could come under bigger scrutiny under Trump 2.0. Automobiles liable for 70 percent of the trade surplus Korea makes with the United States could also come under attack. The champion of traditional fuels could roll back the Inflation Reduction Act as he believes warnings of global warming and climate change to be a “scam.”

Neither the multilateral World Trade Organization nor a bilateral FTA will be of little protection in the face of Trump’s second presidency. We are on our own to survive in the world of jungle. So, what can be done?

First, Seoul must move quickly with a gambit of promising to buy large supplies of energy, weapons and agricultural products from the United States to gain a favorable position within the transition team. We could be caught off guard if we wait until a formal summit meeting.

Second, Korean companies — involved in shipbuilding, chipmaking, automaking and battery production sectors, in particular — must seek new routes to ride on the reinforcement of U.S. manufacturing capacity and U.S.-led value chain to offset the losses from the sanctions on China. They must prepare against higher inflation and an interest-rate regime in America on top of a strong dollar in the latter half of next year. The mass deportation of 8.3 million illegal aliens as well as high tariffs and tax cuts all bode badly for price and interest-rate stability. The mighty greenback will stay intact for some time, given the rush of global funds into the United States on AI-driven big-tech power, a drive to deregulation and a pivot toward safe assets.

Third, we must be thoroughly ready for another disruption in the global value chain due to a head-on clash between the United States and China. In retaliation for U.S. tariffs, China could weaponize its monopolistic supply of rare earth elements and core minerals next year. We must seek alliance with like-minded countries to respond to every issue and build a cooperative network in dealing with “G2” risks. We could work with other major car exporters like Japan, Germany and Mexico if Washington takes punitive actions on surplus-making traders. Beijing may make the most of its wedge strategy by leveraging the fissures among U.S. allies while avoiding a direct confrontation with Uncle Sam.

How we survive Trump 2.0 depends on how we do. Korea Inc. will survive this tidal wave the same way it overcame previous ones. We must have faith in our survival genes that made us stronger with every challenge.

Translation by the Korea JoongAng Daily staff.