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Politics of division can’t avert the Trump Storm

Published: 22 Dec. 2024, 19:48

Choi Byung-il
The author is an emeritus professor of economics at Ewha Womans’ University.

The entire world is terrified of the tariff whip the U.S. president-elect threatened to wield from his first day in office. Canadian Prime Minister Justin Trudeau flew to Florida last month to have dinner with Donald Trump at his Mar-a-Lago club on Thanksgiving. Mexican President Claudia Sheinbaum showed on television a letter she was planning to send to Trump. Such deft moves reflect their deepening fears about Trump’s warning that he will sign an executive order on his first day in office to impose a 25 percent tariff on all imports from Mexico and Canada and an additional 10 percent tariff on China on top of the promised 60 percent tariff. The reason for imposing high tariffs is noteworthy. It was not because of the United States’ worsening trade balance or job losses, but the need to control crime and drug problems caused by immigrants flowing from the Mexican-Canadian border. Trump threatened to crack the tariff whip at Mexico and Canada until their governments resolved the issue.

On the very day Trump threatened the tariff bomb, Trudeau talked with him on the phone and boarded a plane to Florida a few days later. Trudeau bowed down to Trump to save his political life. The Canadian prime minister even had to endure Trump’s eerie joke — “If you’re so scared of tariffs, become the 51st state of the United States.” In early December, the Mexican government announced its arrest of 5,000 migrants trying to illegally cross the U.S. border in its largest-ever fentanyl crackdown. Mexico took action exactly a week after Trump’s “tariff bomb” threat. With just a verbal threat, Trump is realizing his campaign promise to stop illegal immigration. This offers a glimpse into the world during Trump 2.0.

Canada and Mexico are America’s largest trading partners. A common economic zone was established in the early 1990s after their signing of the North American Free Trade Agreement (NAFTA). U.S. carmakers expanded their supply chains to Mexico and Canada. Foreign companies also flocked to Mexico, where wages were relatively low, to take advantage of its free deal with the United States, the world’s largest consumer market. During Trump’s first term, NAFTA was reinvented as the United States-Mexico-Canada Agreement (USMCA) to favor America after Trump’s complaint that the FTA was taking away American manufacturing jobs. Trump is ready to ignore any bilateral agreements he renegotiated because he didn’t like the existing ones. Trump loyalists have the audacity to find any excuse against Canada and Mexico’s claims that the 25 percent tariff violates the trilateral FTA.

Trump’s return means the comeback of the “Tariff Man.” After Trump pledged a 10-20 percent tariff on all imports — and an even higher 60 percent tariff on China — during the campaign, some people say they are “just for negotiation” while others say they are “real.” Trump uses this controversy and confusion to get what he wants. Trump wants to show world that the other party has been dragged into his game until the end. How many people would have expected Trump’s tariff bomb to first target Mexico and Canada? Could they have foreseen that he would use immigration and drugs as an excuse? Trump is also ready to use a tariff bomb to maintain the U.S. dollar hegemony. He warned of imposing tariffs on BRICS, a non-Western economic bloc. “We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100 percent Tariffs,” Trump wrote on Truth Social.

Trump is infamous for unpredictability. But clearly, he uses tariffs as a key tool of his “America First” foreign policy. Trump fiercely criticized the Biden administration’s policy of inducing investment in the United States through subsidies. Throughout the campaign, Trump proclaimed that if he wielded the tariff whip, the tariff revenue would increase, and if foreign companies feared his tariff whip, they would invest in the United States and create jobs. At a seminar held in Seoul late November, an American scholar backed Trump, stressing, “The only way for Korea to survive is investing in the United States, which is fortifying itself with tariff walls.” Will an era of “Shut up and Invest” begin in a month?

The Trump Storm is approaching Korea to demand a radical increase in its defense cost-sharing; the resolution of its trade surplus with the United States; and the abolition and reduction of subsidies for Korea’s investments in the chip, EV and battery plants in America, which had surged in the hopes for subsidies. Trump 2.0 will likely focus on having negotiations linking heterogeneous sectors, rather than holding sector-by-sector negotiations as in the past. What kind of negotiating ability does Korea have when Trump will certainly mix economy and security in negotiations? Is Korea really prepared for his maverick ways of doing business?

There is an abundance of advice on how to deal with the approaching “Trump Storm.” But there’s no doubt that domestic politics holds the key to protecting and securing national interests in the face of Trump’s capriciousness, precariousness and persistent uncertainty.

The sudden declaration and lifting of martial law and the following developments in Korea are seriously damaging the country’s crisis response capabilities and preparedness. We have less than a month left before Trump’s second term begins. The political leadership needed to hold a summit with Trump is vacant, and the government can hardly activate working-level officials or administrative systems to negotiate with Trump’s cabinet members. The extreme political uncertainty in the aftermath of martial law and the impeachment process is weighing heavily on people’s minds, throwing the market into confusion and shocking allies. The world is paying keen attention to the future of the Korea-U.S.-Japan security cooperation. The market hates uncertainty the most. While the foreign exchange rate is fluctuating, the stock market is in a “Sell Korea” panic. Policymakers are struggling to stabilize the market by mobilizing all means, but they are fighting a tough battle against market skepticism.

Amid the impeachment crisis, urgent economic bills are drifting aimlessly. In an era where the economy and security are directly linked, other countries are fiercely competing to expand the production base of industries that will determine the future — such as semiconductors and batteries — with industrial policies championing subsidies. But Korean politics is losing precious time, blocked by the narrow-minded perception that industrial policies only benefit large corporations. Can’t we expect bipartisan efforts from Korean politics to level the playing field that is being tilted unfavorably for Korean companies who must compete on the global stage?

Morris Chang, founder of Taiwan’s TSMC, even worried about his competitor Samsung Electronics after watching Korea’s situation where the economy became a hostage to politics. Korea’s economic strength has already weakened to an alarming level. Domestic and foreign organizations are making chilling predictions that Korea’s potential growth rate will plunge to the 1 percent range from the 2 percent range — an inevitable offshoot of all the regulatory environments and a social atmosphere which hindered entrepreneurial spirit by prioritizing stability over innovation in the past.

Although regulations on the environment, safety and fair trade may have their own merits, they were indifferent to the negative impact from all these regulations on the dynamism and ecosystem of the economy. Every time a five-year, single-term administration is launched, they insisted on their own policies. As a result, the management environment of companies who must compete in a long-distance race has become fragmented. The result is Korea’s weakened economic strength. Who can guarantee that Korea won’t become a country that is swayed by the power of neighboring countries after its growth stopped? If we don’t want to walk into that terrible winter, we must gather our wisdom on ways to minimize the impact of political uncertainty on the economy.

Translation by the Korea JoongAng Daily staff.