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‘It’ll be faster, stronger and more systematic’

Published: 08 Dec. 2024, 19:37

Suh Kyoung-ho
The author is an editorial writer of the JoongAng Ilbo.

Since the election victory of former U.S. President Donald Trump, the world has been paying sharp attention to the ‘Trump storm’ he will bring in his second term. Given its heavy reliance on export, Korea, a manufacturing powerhouse, will surely be hard-hit by the Trump-triggered global tariff war. How should Korea respond to the shock waves? The JoongAng Ilbo recently met with Chung Chul — president of the Korea Economic Research Institute and research director of the Federation of Korean Industries (FKI) — at the FKI Tower in Yeouido. Chung, a trade expert, participated in the renegotiation of the Korea-U.S. FTA during Trump’s first term. The following are the excerpts of the interview on hot trade issues.

Q. What do you think will be the biggest difference in U.S. trade policy between Trump’s first term and second term?

A. Thanks to his experience in the first term, Trump will certainly think he is better prepared and will be more confident. His trade policy will be implemented swiftly, confidently and systematically — not haphazardly or impulsively — in his second term. The first target will be China, followed by countries like Mexico and Vietnam, which enjoyed a large trade surplus with the United States during the Biden administration. But a universal 10-20 percent tariff on all imports looks unrealistic due to problems with revising related laws.

What is implied by Trump’s threat to impose high tariffs on Mexico and Canada — members of the U.S.-Mexico-Canada Agreement (USMCA) — on his first day in the Oval Office?
Canada and Mexico’s situations are different from Korea’s. First, the economies of Canada and the United States are closely linked. If Washington levies a 25 percent tariff on Canadian imports, the United States will be under enormous inflation pressure. The two countries will strike a deal before imposing a 25 percent tariff. [Canadian Prime Minister Justin Trudeau flew 2,200 kilometers (1,367 miles) to Trump’s Mar-a-Lago estate in Florida two weeks ago to improve his relations with Trump.] But Trump would impose a 25 percent tariff on Mexican imports due to U.S. discontent about illegal immigration and fentanyl drugs from Mexico. Mexico also serves as a detour route for foreign countries like China to export to the U.S. market. Trump will be tough on Mexico.

Why does Trump want to impose a fee for access to U.S. markets?
Trump deems the right to access U.S. markets a privilege. He thinks the United States doesn’t have to attract foreign investments by offering them subsidies just like the Biden administration did. Instead, Trump is convinced that if he raises tariffs, foreign companies will invest in America on their own. Trump believes he doesn’t need to use carrots, but a stick. That’s a revolutionary way of thinking.

If Trump’s universal tariff is implemented, the Korea Institute for International Economic Policy (KIEP) expects Korean exports to the United States to decrease by a maximum of $44.8 billion annually. The Korea Institute for Industrial Economics and Trade (KIET) anticipates the exports to contract by 8.4-14.0 percent ($5.5-9.3 billion) next year. What’s the estimate by the Korea Economic Research Institute (KERI)?
We expect Korean exports to shrink by $15.8 billion if a 10 percent universal tariff is implemented. But a 20 percent universal tariff is unlikely as it will certainly bring about a global crisis on par with World War III.

The Smoot-Hawley Tariff Act of the United States in 1930 to raise import duties on agricultural and industrial goods by some 20 percent sparked a global trade war and eventually led to the Great Depression. Are you sure the United States won’t go that far this time?
I don’t think Washington will go that far. First of all, American companies won’t stay still. Many entrepreneurs will serve in Trump’s second term. Trump is a businessman, and so is Elon Musk. So, when we draw up our negotiation strategy, we should reflect the corporate sector’s opinions.

Many people worry about the possibility of Trump slashing subsidies promised by the Inflation Reduction Act or the CHIPS and Science Act under the Biden administration.
We can’t rule out such a possibility. Trump believes that if the United States stops providing subsidies, foreign companies will still want to do business in America — even if he raises tariffs. Therefore, the subsidies will surely be cut or eliminated. As most of the states where Korean companies have invested are Republican-controlled, such state governments can stand up to the federal government. Therefore, we need to stress our companies’ huge impact on the local economy and effectively respond in solidarity with local politicians, workers and partner companies from those states.

What about the possibility of Trump renegotiating the Korea-U.S. FTA?
I think Trump 2.0 would pressure Korea in other ways than the FTA. During the first term, Trump also pushed for steel tariffs under Section 232 of the Trade Expansion Act of 1962. The United States can use the card of designating Korea a currency manipulator to put pressure on it.

Experts says the U.S. trade deficit with Korea grew due to Korea’s increasing exports of intermediate goods to the United States to meet the demand from local factories in America.
That’s correct. If you look at our investments in the United States, almost two-thirds of the materials for them come from Korea. They are cheaper and more efficient for local factories to use.

At a symposium hosted by FKI last month, former Trade Minister Yoo Myung-hee reportedly said, “I heard that U.S. trade authorities responded coldly when we tried to convince them of the job growth for American workers at local factories built by Korea.” What did she mean by “responded coldly?”
The United States is basically saying, ‘That’s fine. But what are you going to do with the trade deficit?’”

Chung also participated as a trade expert in the renegotiation of the Korea-U.S. FTA with Trump 1.0 when Yoo headed the trade negotiation office in the Moon Jae-in administration. Chung stressed the importance of “responding calmly without making hasty moves since Trump has not put forth much yet.” He advised Korea to wait and see without making a fuss in a volatile circumstance like this.

It’s the end of the year. What’s the most memorable event in the business world this year?
It would be the Nov. 21 joint statement by CEOs of major local companies to oppose a revision to the Commercial Act aimed at enlarging the board of directors’ responsibility for minority shareholders. The manifesto by the CEOs — the first of its kind since 2015 — clearly reflects all their pains from the complex crisis at home and abroad. When I met with the heads of private economic research institutes, all of them worried about a critical lack of growth engines for the economy. We should refrain from regulatory legislation such as the revision of the Commercial Act to hamper normal board activities with excessive lawsuits and attacks from overseas speculative capital.

Some criticize that the revision of our Commercial Act to extend board directors’ duty for loyalty to minority shareholders is ‘fear marketing.’
Abusing lawsuits are already taking place in America. Since courts recognized board director’s duty of loyalty to minority shareholders in the case of mergers, 71 to 94 percent of mergers and acquisitions (M&As) of U.S. listed companies, worth more than $100 million each, resulted in 3 to 4 shareholder derivative suits between 2009 and 2018.

Do you think that external shocks from Trump 2.0 can offer opportunities for the Korean economy?
Last week, Adam Posen, president of the Peterson Institute for International Economics, said at a conference with us, “The U.S. will be Fortress America, almost a fortress.” In other words, it becomes a fortress by putting up a curtain of tariffs. But we have a communication channel called FTA, and we have already invested in the U.S. ‘without paying fees.’ There will be difficulties in Trump’s second term, but there will also be opportunities.

Translation by the Korea JoongAng Daily staff.