[EAI Roundtable] 2019 EAI Trade Policy Dialogue

"South Korea Needs to Seek Trade Policies for Building a New Asia-Pacific Trade Order"

The South Korean government has been subjected to the so-called 'Trump offensive' since the launch of the Trump administration. At times, it has given the impression that its long-term strategy for responding to these challenges is unclear, and its positions on major issues beyond bilateral trade matters with the U.S. are ambiguous, as it appears to be focused solely on defense. Historically, South Korea's trade policies have been characterized by actively leveraging the given environment to pursue proactive and sometimes offensive strategies. In particular, its FTA strategy has received positive evaluations from abroad. However, since the Park Geun-hye administration, and especially concerning the current administration's trade policies, various reservations have been raised. There is a concern that South Korea might miss the broader trend by responding to the 'Trump offensive' issue by issue, reactively. Therefore, it is time to re-evaluate and refine our strategy. To this end, the East Asia Institute convened a dialogue with three South Korean trade policy experts on February 19th at the Institute's conference room. The dialogue analyzed the dynamics within the Asia-Pacific region and South Korea's role therein, discussing how South Korea's trade policy should unfold in the medium to long term.

Date: Tuesday, February 19, 2019

Venue: East Asia Institute Conference Room

Participants: Son Yeol (EAI President; Professor, Yonsei University)

Ahn Dukgeun (Professor, Seoul National University)

Lee Seungjoo (Director, EAI Center for Trade, Technology, and Transformation; Professor, Chung-Ang University)

Lee Jae-min (Professor, Seoul National University)

Executive Summary

The U.S.-China trade war will be prolonged.

South Korea's trade policy history shows a pattern of actively utilizing the given environment to pursue proactive and sometimes offensive policies. However, with the ongoing U.S.-China trade war, concerns are rising that South Korea might miss the broader trend by responding to the 'Trump offensive' issue by issue, reactively. It is now time for South Korea to refine its strategy.

China's abandonment of its 'hide your strength, bide your time' (tao guang yang hui) approach towards the U.S. has been a major factor in the U.S.-China trade war. China's recent policies, launched without adequate preparation, have provoked strong vigilance among Western countries, including the U.S., and stimulated U.S. containment efforts. As a result, China finds itself in a situation where it is unilaterally disadvantaged in the trade war.

Trump Following Reagan's Path: Will U.S. External Pressure Work on China?

The Trump administration is benchmarking its trade policy against the Reagan administration of the 1980s. Based on this, the U.S. is exerting strong external pressure on China, while China is not readily accepting it. This can be compared to the U.S. pressure exerted on Japan in the past, but the key difference is that the U.S. is engaging in negotiations with China through bilateral channels while simultaneously altering the framework of competition.

While the U.S. attempts to resolve issues through bilateral negotiations with China, it will ultimately seek to reshape the global economic order by strengthening solidarity and cooperation with countries that share its interests.

Japan's Leadership in the CPTPP Provides a Starting Point for a New Asia-Pacific Trade Order

The U.S.-China trade war is impacting the trade order in the Asia-Pacific region more significantly than in any other region, bearing the brunt of Trump's protectionism and U.S.-China conflict. In particular, Japan's exceptional leadership in the recent formation of the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership) warrants attention. From a strategic perspective, the entry into force of the CPTPP can serve, on one hand, as a response to U.S. unilateralism and, on the other hand, as a safety net against China's mercantilist trade practices.

Powerless China Expected to Maintain a Reactive Stance for the Time Being

Amidst a challenging global trade environment, China appears hesitant to adopt aggressive or proactive policies due to concerns about intensifying the U.S.-China competitive dynamic. Considering that China's Belt and Road Initiative, while outwardly promoting connectivity among regional countries, has also been assessed as a strategic choice to mitigate or avoid confrontation with the U.S. in the Asia-Pacific region, China's trade policy is likely to remain reactive in the short term.

South Korea Needs to Formulate a New Framework to Prepare for a Protracted U.S.-China Trade War

The global trade environment itself is facing difficult times. For a country like South Korea, with high external dependency, this presents a significant challenge, necessitating the pursuit of strategic trade policies to navigate it effectively. Moving forward, the South Korean government needs to respond in real-time to U.S. trade pressure while also closely monitoring international trends to maintain a strategic and agile policy-making posture in response to the strategic trade policy competition among major powers.

Under the new trade environment, trade negotiations can be characterized as a competition to establish multilateral trade rules and norms that facilitate the integration of future industries' trade, investment, and services, moving beyond existing tariff measures. A robust internal capacity is required to cope with the structural competition surrounding industrial standards, platforms, and the control of order. ■

Attachment: [EAI Trade Policy Dialogue] Dialogue Record_190228.pdf