Government urged to overhaul trade policies
By Kim Jae-kyoung
The Korean economy faces a rocky road ahead, with its exports expected to dwindle in the coming years, due to a "triple whammy" from abroad.
These are: a trade war initiated by the United States, China's policy shift toward "quality growth" from the old quantitative growth model, and the emergence of larger multilateral trade pacts.
These three forces are combining to make a significant shift in world trade order, which many believe will have an overarching effect on Korea's trade and economy.
First, Korea has become the fall guy of Donald Trump's protectionist measures.
Although the Trump administration's tariff measures do not target Korea, the country is more vulnerable to such attacks. Besides, U.S. trade actions are also expected to affect the renegotiation of the Korea-U.S. Free Trade Agreement (KORUS FTA).
"While China is the nominal target for many of the Trump administration's trade actions, South Korea has been hit harder," Troy Stangarone, senior director at the Korea Economic Institute (KEI) based in Washington, told The Korea Times.
"The U.S. administration has pushed to renegotiate the KORUS FTA. On trade remedies, estimates indicate the effect of the steel tariffs will impact South Korea almost twice as much as China."
He said if the U.S. takes on China more directly Korea could be impacted as well due to the ties between the three economies.
What is more worrisome is that more punitive tariffs on cars and other products are expected, given that pro-free trade National Economic Council chief Gary Cohn resigned last week while hawkish economist Peter Navarro has a greater say in the White House.
Cohn opposed the steel tariff measures until the last moment but Trump sided with Navarro who has played an important role behind the scenes in a national defense review that has led to the recent tariff actions.
"It is true that Trump has finally taken a step in the direction of being aggressive on trade issues," said Antonio Fatas, a professor of economics at INSEAD's Singapore Campus.
"Given the resignation of Cohn, we might see more of this in the future."
Second, China, Korea's biggest trading partner, has ditched its aggressive growth strategy and has decided to pursue "quality growth" by bolstering efficiency and innovation.
At a media briefing on March 9, Zhou Xiaochuan, governor of the People's Bank of China (PBOC) said as the Chinese economy seeks quality development, it will depend less on stimulus to boost growth.
To this end, China plans to focus on boosting innovation, improving efficiency and deepening multilateral regional economic and trade cooperation.
This means Chinese firms will further move up the value chain, threatening Korea's leading manufacturing and technology firms.
"China is a large and fat growing economy that will challenge South Korea at a level it could not do earlier," Fatas said.
"The only way to fight this is to continue running and innovating to stay ahead. There is no magic bullet here."
Thirdly, against Trump's protectionism, a growing number of countries, most notably Japan and China, seek to expand their economic fronts abroad by forming multilateral trade agreements.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the revived version of TPP, is a case in point.
On March 8, the multilateral trade pact was signed in Santiago, Chile, by 11 countries _ Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Chilean Foreign Minister Heraldo Munoz said the signing of the agreement is a strong signal "against protectionist pressures, in favor of a world open to trade, without unilateral sanctions and without the threat of trade wars."
The problem is Korea is not agile and swift in responding to this trend.
Korea's Finance Minister Kim Dong-yeon said Monday the country will make a final decision in the first half on whether to join the CPTPP, which represents 500 million people and account for 13.5 percent of gross world product (GWP).
"Korea chose not to join the TPP which is now the CPTPP. Hence it's on the outside, looking in, of Asia's most forward-looking trade pact ever," said Sean King, senior vice president of Park Strategies in New York.
"It should take a good hard look at the CPTPP before it's too late."
Analysts said President Moon Jae-in should review the nation's trade policies from scratch and come up with strategies to boost domestic demand and diversify its export destinations.
"South Korea will always be dependent on trade, but reducing that dependence by raising domestic consumption can help smooth the disruptions in difficult times," Stangarone said.
"China and the U.S. account for 40 percent of Korean exports. Helping Korean firms export to a more diverse range of countries would help reduce Korea's dependence on any one market."
By Kim Jae-kyoung
The Korean economy faces a rocky road ahead, with its exports expected to dwindle in the coming years, due to a "triple whammy" from abroad.
These are: a trade war initiated by the United States, China's policy shift toward "quality growth" from the old quantitative growth model, and the emergence of larger multilateral trade pacts.
These three forces are combining to make a significant shift in world trade order, which many believe will have an overarching effect on Korea's trade and economy.
First, Korea has become the fall guy of Donald Trump's protectionist measures.
Although the Trump administration's tariff measures do not target Korea, the country is more vulnerable to such attacks. Besides, U.S. trade actions are also expected to affect the renegotiation of the Korea-U.S. Free Trade Agreement (KORUS FTA).
"While China is the nominal target for many of the Trump administration's trade actions, South Korea has been hit harder," Troy Stangarone, senior director at the Korea Economic Institute (KEI) based in Washington, told The Korea Times.
"The U.S. administration has pushed to renegotiate the KORUS FTA. On trade remedies, estimates indicate the effect of the steel tariffs will impact South Korea almost twice as much as China."
He said if the U.S. takes on China more directly Korea could be impacted as well due to the ties between the three economies.
What is more worrisome is that more punitive tariffs on cars and other products are expected, given that pro-free trade National Economic Council chief Gary Cohn resigned last week while hawkish economist Peter Navarro has a greater say in the White House.
Cohn opposed the steel tariff measures until the last moment but Trump sided with Navarro who has played an important role behind the scenes in a national defense review that has led to the recent tariff actions.
"It is true that Trump has finally taken a step in the direction of being aggressive on trade issues," said Antonio Fatas, a professor of economics at INSEAD's Singapore Campus.
"Given the resignation of Cohn, we might see more of this in the future."
Second, China, Korea's biggest trading partner, has ditched its aggressive growth strategy and has decided to pursue "quality growth" by bolstering efficiency and innovation.
At a media briefing on March 9, Zhou Xiaochuan, governor of the People's Bank of China (PBOC) said as the Chinese economy seeks quality development, it will depend less on stimulus to boost growth.
To this end, China plans to focus on boosting innovation, improving efficiency and deepening multilateral regional economic and trade cooperation.
This means Chinese firms will further move up the value chain, threatening Korea's leading manufacturing and technology firms.
"China is a large and fat growing economy that will challenge South Korea at a level it could not do earlier," Fatas said.
"The only way to fight this is to continue running and innovating to stay ahead. There is no magic bullet here."
Thirdly, against Trump's protectionism, a growing number of countries, most notably Japan and China, seek to expand their economic fronts abroad by forming multilateral trade agreements.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the revived version of TPP, is a case in point.
On March 8, the multilateral trade pact was signed in Santiago, Chile, by 11 countries _ Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Chilean Foreign Minister Heraldo Munoz said the signing of the agreement is a strong signal "against protectionist pressures, in favor of a world open to trade, without unilateral sanctions and without the threat of trade wars."
The problem is Korea is not agile and swift in responding to this trend.
Korea's Finance Minister Kim Dong-yeon said Monday the country will make a final decision in the first half on whether to join the CPTPP, which represents 500 million people and account for 13.5 percent of gross world product (GWP).
"Korea chose not to join the TPP which is now the CPTPP. Hence it's on the outside, looking in, of Asia's most forward-looking trade pact ever," said Sean King, senior vice president of Park Strategies in New York.
"It should take a good hard look at the CPTPP before it's too late."
Analysts said President Moon Jae-in should review the nation's trade policies from scratch and come up with strategies to boost domestic demand and diversify its export destinations.
"South Korea will always be dependent on trade, but reducing that dependence by raising domestic consumption can help smooth the disruptions in difficult times," Stangarone said.
"China and the U.S. account for 40 percent of Korean exports. Helping Korean firms export to a more diverse range of countries would help reduce Korea's dependence on any one market."
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