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How to interpret Trump’s eccentric and rude shock

Published: 10 Mar. 2025, 00:03

Choi Byung-chun

The author is the director of the New Growth Economy Research Institute.

Since taking office on Jan. 20, U.S. President Donald Trump has made headlines daily. He slapped a 25 percent tariff on Mexico and Canada and imposed two rounds of tariffs totaling 20 percent on China. In response, Mexico, Canada and China swiftly retaliated with countertariffs.

President Donald Trump speaks during a swearing-in ceremony for Secretary of Commerce Howard Lutnick in the Oval Office of the White House in Washington on Feb. 21. [AP/POOL/YONHAP].

The United States and Canada are part of the Five Eyes alliance, a close intelligence-sharing network comprising the United States, Britain, Canada, Australia and New Zealand. This makes Ottawa one of Washington's closest allies. Yet, Trump appears indifferent to alliances. He has publicly insulted the northern neighbor, suggesting it should become the 51st U.S. state, and has mockingly referred to Prime Minister Justin Trudeau as a mere “governor.”

In just six weeks, Trump has already dismissed 200,000 government employees — a staggering number. He has also adopted a pro-Valdimir Putin stance regarding the Russia-Ukraine war, treating Ukrainian President Volodymyr Zelensky with open disrespect in a White House meeting.

Trump has declared a “tariff war” on key allies, expressed pro-Putin sympathies, and completely halted military aid to Ukraine. What motivates such actions? While Trump’s personal character plays a role, his policies also reflect an attempt to address pressing economic problems in the United States; namely, massive fiscal deficits and the decline of manufacturing jobs.

Financial crisis, Covid-19 and the exploding deficit

The United States is often called a “quadrillion-dollar nation” due to its colossal defense spending, which exceeded $874.1 billion in 2024. However, this moniker also symbolizes its astronomical fiscal deficit. In 2024 alone, the United States spent $882 billion just on interest payments for government bonds.

U.S. President Donald Trump reacts in the Oval Office in Washington on March 6. [REUTERS/YONHAP]

Historically, the United States did not always suffer from extreme fiscal deficits. The turning points were the 2008 global financial crisis and the Covid-19 economic crisis in 2020 and 2021. Both crises were of “Great Depression-level” severity. They were mitigated through aggressive and innovative monetary and fiscal policies, including the U.S. Federal Reserve’s quantitative easing and large-scale government subsidies. As a result, the federal deficit skyrocketed. In 2020, it reached $3.132 trillion, followed by $2.77 trillion in 2021, $1.37 trillion in 2022, and $1.833 trillion in 2024.

To curb this deficit and mounting interest payments, Trump is implementing his own solutions: massive government layoffs, reducing his country's role as the world’s police, generating revenue through tariffs, shifting security costs onto allies and aggressively courting foreign tech giants like TSMC and Samsung Electronics. By halting military aid to Ukraine, Trump is forcing European nations to develop their own defense systems. Meanwhile, economically capable nations like Japan, Korea and Taiwan are likely to face increased security cost-sharing demands. Trump may even leverage the potential withdrawal of U.S. forces from Korea as a bargaining chip.

Ukrainian President Volodymyr Zelensky departs the White House after a contentious meeting with President Donald Trump in the Oval Office on Feb. 28. Zelensky left after being criticized by Trump and Vice President JD Vance for not being grateful enough for U.S. support in its war against Russia. [UPI/YONHAP]

Another key pillar of Trump’s "Make America Great Again" agenda is the revival of manufacturing. China joined the World Trade Organization (WTO) in November 2001, a move facilitated by the Bill Clinton administration. At the time, the United States had approximately 18 million manufacturing jobs. However, following China’s WTO entry, American manufacturing employment plummeted. In the six to seven years leading up to the 2008 financial crisis, the United States lost approximately seven million manufacturing jobs as factories relocated en masse to China.

A parallel to Korea’s 1992 shock

A similar phenomenon occurred in Korea after it established diplomatic ties with China in 1992. The entry of Chinese products devastated labor-intensive export industries such as Daegu’s textile sector and Busan’s shoe manufacturing. Korean factories relocated to China in pursuit of lower labor costs.

Manufacturing can be categorized into low-tech, mid-tech, high-tech and advanced-tech sectors. Low-tech industries are labor-intensive, while high-tech and advanced-tech industries are knowledge- and capital-intensive, employing fewer workers per unit. In the 1990s, China dominated low-tech manufacturing. By the 2000s, it had an overwhelming cost advantage in mid-tech manufacturing. Since the 2020s, China has been rapidly catching up — or even surpassing — countries like Korea, Japan, Germany and the United States in high-tech and advanced-tech sectors. The core issue behind the decline of manufacturing jobs in the United States and Korea is their inability to compete with China’s cost-efficiency.

Trump’s policies, which many perceive as eccentric and rude, stem from the massive U.S. fiscal deficit, mounting interest burden and manufacturing job losses. However, whether he can achieve his objectives remains uncertain. His tariff war poses two major risks: First, it will likely fuel domestic inflation, and retaliatory tariffs from other countries will hurt U.S. farmers by reducing exports, fostering political discontent. Second, protectionism and tariff wars suppress global demand by increasing uncertainty and costs, thereby shrinking global trade volumes and slowing economic growth.

President Donald Trump departs the White House in Washington, headed for a weekend trip to Florida on March 7. [UPI/YONHAP]

Korea’s economy is heavily reliant on exports, manufacturing and large corporations. Had Korea focused on its domestic market and small businesses, its growth potential would have been severely limited. Despite some side effects, the export-driven model has been overwhelmingly beneficial.

The need to rediscover the service sector

From the 1960s to the 2010s, Korea’s rapid growth benefited significantly from the postwar global economic order established by the United States. After World War II, Washington promoted free international trade, believing that protectionist policies greatly contributed to the Great Depression and two world wars. Korea thrived under this free trade system, which the United States maintained while acting as the world’s police force. Unlike European imperial powers before the 20th century, a postwar United States did not prioritize economic hegemony over security cooperation. This distinction defined U.S. global dominance in the 20th century.

Now, Korea cannot assume that Trump’s protectionist policies will disappear after he leaves office. The future remains highly uncertain. If protectionism strengthens, Korea — dependent on exports, manufacturing, and large corporations — will suffer major economic blows. Moreover, with China and the United States as its two largest export markets — each accounting for about 19 to 20 percent of exports — any tariff war between them will inevitably harm Korea.

How should Seoul respond to the Trump era? Three strategies are crucial. First, following the next presidential election, the new administration should establish an economic coordination body involving the government, ruling party and major corporations to navigate the crisis. The current economic situation must be recognized as a national emergency.

Second, Korea must rediscover its service sector. Traditionally, manufacturing has been more tradable than services, leading to faster productivity gains. However, with the rise of digitalization and AI, the lines between manufacturing and services are blurring. The service-oriented transformation of manufacturing and intermediate goods is expanding rapidly, outpacing growth in traditional manufacturing trade.

Third, Korea should reassess and strengthen collaboration between large corporations and small- and medium-sized enterprises (SMEs). While conglomerates have been controversial, they have also been pivotal to industrial growth. Moving forward, integrating SMEs with digitalization and service industries is key. SMEs are agile but lack capital and resources, making cooperation with conglomerates essential. While chaebol reforms should proceed gradually, the role of large corporations should be further encouraged.

Translated using generative AI and edited by Korea JoongAng Daily staff.