Special Report on the New Administration's Foreign Policy Recommendations: Korea's Trade Diplomacy 2030: Three Major Strategies to Respond to the Turmoil in the Liberal International Economic Order

Korea's trade diplomacy over the next five years faces four major challenges: ① actively responding to US economic pressure, exemplified by Trump's tariff policies; ② reducing over-reliance on China while strengthening industrial competitiveness vis-à-vis China; ③ securing innovation capabilities amidst the US-China high-tech hegemony competition; and ④ escaping stagnant growth and employment. A recent public opinion poll conducted by EAI shows that the public demands more proactive and systematic economic diplomacy than ever before ([Figure 1] EAI Public Opinion Poll, January 24-26, 2025).

The new administration's trade diplomacy is at a critical juncture amidst a rapidly changing global economic order. While the immediate task is to navigate US-Korea tariff negotiations in response to Trump's tariff hikes, a more crucial task is to accurately understand the nature of the global economic order's turmoil and discern the direction of the new order's transformation. The new government must formulate strategies that respond to these changes with agility, proactivity, and multifaceted approaches.

The core arguments of this article are as follows. First, the principle of Most-Favored-Nation (MFN) treatment, the cornerstone of the existing liberal trade order, and indeed the WTO itself, have been declared defunct. Given that the US and China, the world's two largest economies, are the primary culprits in disrupting the order, a return to the past order is highly improbable. Therefore, Korea's past trade diplomacy, including WTO negotiations and FTAs such as the Korea-US FTA and Korea-China FTA, must be considered concluded.

Second, the next five years of the new administration will be a period of responding to the emergence of a new order amidst the great chaos of the existing order. The new order can be projected in three directions: a managed liberal order, multipolarization, and anarchy. The direction of these changes will largely depend on the strategic choices of the United States.

Third, the order that aligns with Korea's core interests as a trading nation is a 'managed liberal' order. Therefore, Korea must pursue 'order-building diplomacy,' an unprecedented endeavor. This involves, macroscopically, diplomacy that assists the US in re-entering the framework of a managed liberal order (or diplomacy that supports the US's return to hegemony), and diplomacy that seeks solidarity with like-minded countries that share the goal of restoring and building such an order.

I. Changes in the Global Economic Order

Since 1945, the global economy has been reorganized from a bloc-based and closed order into an integrated and open liberal order led by the United States. The US spearheaded the creation of international institutions such as the GATT, the International Monetary Fund (IMF), and the World Bank, and provided global public goods such as opening its markets and ensuring freedom of navigation. Within this order, Korea established an export-led political and economic system, achieving high growth and prosperity. It became a model student and the greatest beneficiary of the liberal order.

This post-Cold War hegemonic order evolved into a market-centric liberal (neoliberal) order amidst the waves of post-Cold War and globalization in the 1990s, leading to increased interdependence among nations and bringing prosperity to the entire globe. Korea ascended to the ranks of developed countries through active promotion of globalization. On the other hand, the progress of globalization resulted in ① widening economic imbalances and disparities between and within nations, and ② increased risks of over-dependence due to asymmetries in interdependence among nations. The COVID-19 pandemic and the Russia-Ukraine war have further amplified the risks of over-dependence.

The US is also a driving force behind the changes in the order, reacting sensitively to the risks posed by the existing order. The objective of the US, spanning from the first Trump administration through the Biden administration and into the second Trump term, is to resolve the decline of domestic manufacturing, the expansion of trade imbalances, and over-reliance on competitor China, ultimately securing a stable advantage in the high-tech competition with China. The US is attempting to revive its manufacturing base in sectors such as steel, aluminum, and automobiles through tariff policies, and is pursuing industrial policies to maintain its advantage over China in high-tech sectors like semiconductors and AI. This signifies a departure from the existing liberal order. Consequently, the US, the world's largest economy with the lowest average tariff rate of 3.3%, is transitioning into a strongly protectionist nation with tariffs exceeding 30% in its second Trump term.

Meanwhile, China, under the existing liberal order, has efficiently operated a state-led mercantilist system, building its manufacturing base and securing export competitiveness, leading to high growth and becoming the world's second-largest economy. As China built a vast domestic market, its economic influence expanded, and neighboring countries became increasingly dependent on China. In response, the US has criticized China for exploiting the existing order to accumulate wealth unfairly. It argues that since China's accession to the WTO in 2001, it has abused its developing country status to restrict imports and promote exports, thereby weakening the US manufacturing base and exacerbating inequality and unemployment.

The US is concerned about vulnerabilities arising from over-reliance on China. While US import reliance on China has steadily increased, China's export reliance on the US has decreased, leading to growing concerns about asymmetries in interdependence. Furthermore, the US expresses strong concern about China's leadership in future technologies such as AI, batteries, robotics, and digital surveillance systems through its techno-security state model. The Biden administration has employed the concept of de-risking to address over-reliance on China, including diversifying imports of critical minerals, correcting trade deficits, and reducing China's $85 billion holdings of US Treasury bonds. To enjoy the benefits of interdependence while mitigating the national security risks of over-dependence, it has pursued diversification of external reliance, reorganized supply chains with friendly nations to enhance resilience, and blocked the transfer of dual-use technologies to China.

The current Trump administration is pursuing strategic decoupling, not only by reducing trade with China through domestic supply chain relocation and reciprocal tariffs but also by blocking routes that use Mexico, Canada, and Vietnam as export bases. Given that the economies of both countries are still intricately linked by a dense web of interdependence, the US-China tariff war will likely transition into negotiations and move towards compromise. Nevertheless, it will be difficult to reverse the elevated tariff rates and the various export and import regulations already in place. The level of interdependence between the two countries is expected to significantly decrease.

In the current international order where US leadership plays a pivotal role, changes in the foreign and security policy strategy of the second Trump administration will have a profound impact on the international order. The question is whether the US strategy will bring about revolutionary changes as proposed by President Trump. Crucially, while President Trump's individual disposition or policy choices significantly shape US foreign and security strategy, it must be understood within the context of the structural transformation of the international order that the US faces. In other words, even if Trump had not returned as president, or if the Biden administration had continued, the US would have faced the national imperative of readjusting its hegemonic order. Trump's second-term strategy should be viewed not as an exceptional foreign policy, but as an adjustment stemming from the structural situation in which the US finds itself.

II. Direction of Order Change

The direction of the order leading up to 2030 will be significantly influenced by changes in US policy. As Trump's tariffs directly violate Article I (Most-Favored-Nation principle) and Article II (principle of prohibiting tariff increases) of the GATT, the US is departing from the liberal multilateral economic order. Furthermore, it is significantly weakening the virtuous cycle of economy-security, i.e., the mechanism of deepening economic cooperation due to security externalities and strengthening security cooperation due to economic externalities. Global governance also favors negotiation/cooperation frameworks centered on great powers and friendly nations, rather than multilateralism.

Is this departure from liberalism by Trump a temporary strategic adjustment or a fundamental strategic redesign? Depending on the prediction of US changes, the world order in 2030, and thus the order the new Korean government will face, can be structured into the following three scenarios. The first is a scenario where the US returns to a managed multilateral order through strategic adjustment. The second is a scenario where the US abandons the multilateral order and embarks on strategic redesign, while multiple trade orders, centered around groups led by China, the EU, and CPTPP members, compete and coexist. Considering the positive attitude of the American public towards trade ([Figure 2]) and the deepened economic interdependence among major economic blocs, including the US and China, the competition between the first and second scenarios is highly likely for the construction of the future order. If these attempts fail, it could lead to the third scenario: anarchy.

1. Managed Liberal Order (Reglobalization Order)

This can be described as the restoration of a liberal multilateral order through the cooperation of a group of countries favoring embedded, modified globalization, or reglobalization. Like-minded countries or like-minded nations, particularly developed countries such as Japan, Australia, Canada, the UK, and the EU, are driving 'multilateral cooperation without the US' to promote inclusive globalization that mitigates wealth inequality caused by market principles, and resilient globalization against disasters like pandemics or the weaponization of interdependence among nations. The key again is whether the US will undertake a strategic readjustment. This involves a readjustment of US foreign economic policy, where short-term gains are secured through economic coercion such as tariffs, followed by a return to hegemony – a process of partial modification and return to the existing order. In 1971, President Nixon achieved initial success through reduced hegemonic obligations, abandonment of the fixed exchange rate system, and tariff increases, after which he abolished tariff increases and transitioned to stable management of the floating exchange rate system, thereby maintaining its hegemonic status through the modification and adjustment of the existing liberal order.

The aggressive tariff policies of the Trump administration are showing signs of being curbed by the backlash and retaliatory measures from China and others, concerns about inflation due to tariff wars, and negative reactions from financial markets such as falling US Treasury yields and stock market crashes. The situation is moving towards a compromise with China. The possibility of the US returning to a managed liberal order may begin when President Trump confirms that imposing tariffs does not contribute to US economic growth or the resolution of its trade deficit.

2. Multipolarization

If efforts to establish a managed liberal multilateral order encounter difficulties, a scenario of multipolarization, where multiple orders/blocs compete and coexist, may emerge. This is a scenario where the US completely departs from the GATT/WTO system and pursues a new form of international trade order. This belief is strong that managed trade centered on tariffs can enable the revival of US industry and the resolution of its trade deficit. The US may selectively conclude bilateral/plurilateral preferential trade agreements based on its strategic and economic interests, forming low-level cooperation frameworks around them. Furthermore, a non-liberal economic platform-based order led by China, for example through the expansion of BRICS, may be formed, while a liberal rules-based order may emerge centered around the EU and CPTPP countries. If these do not exist exclusively and antagonistically, but rather form loosely connected plurilateral networks between blocs or orders, it could lead to the so-called 'spaghetti bowl effect' economically, but an overall coexisting system could be maintained.

3. Anarchy

If the above efforts fail, there is a possibility of exclusive bloc economies re-emerging, similar to the 1930s. This scenario involves the emergence of bloc economies centered around multiple common currencies after the collapse of the gold standard, leading to a situation of 'beggar-thy-neighbor' through competitive currency wars between blocs, protectionist tariffs and trade controls, and foreign exchange management. The key variable in this transition would be the strategic decoupling between the US and China. Given the deep economic interdependence between the two economies (and major economic blocs), it is unlikely that relations between the two countries will deteriorate into division and bloc formation by 2030.

III. Korea's Response Challenges and Strategies

As an open trading nation and a liberal democratic country, the option that relatively aligns with Korea's interests is scenario 2. Preventing the fragmentation of the world economy and defending the rules-based international order are crucial not only for securing Korea's economic prosperity but also for contributing to geopolitical stability through the web of close interdependence. At the same time, preparations must be made for the possibility that the US may not return to the liberal order.

In summary, Korea's economic diplomacy challenges are, macroscopically, to support the US's re-entry into the liberal multilateral order (or diplomacy that supports the US's return to hegemony), and to pursue solidarity with like-minded countries that share the goal of restoring this order. The three major practical tasks to achieve these strategic objectives are as follows:

First, diplomacy to support the US's return to a managed liberal order. The new administration will engage in negotiations on three major tariff issues – steel and aluminum tariffs (25%), automobile and auto parts tariffs (25%), and reciprocal tariffs applied to Korea (25%) – to achieve a balance of industrial and economic interests between Korea and the US. The fundamental framework of the Trump administration in these negotiations is to pursue rebalancing through tariffs – correcting trade deficits, correcting imbalances between manufacturing and services, reducing fiscal deficits, and strategic decoupling (from China). Korea must also adopt a comprehensive macro-framework. A managed liberal, rules-based international order is of vital interest to the Korean economy, thus requiring a hegemonic power to sustain it. In the foreseeable future, there is no power other than the US that can fulfill this role. Therefore, Korea's negotiations with the US should not simply aim to balance economic and political interests but should be framed as 'support for the US's hegemonic role,' or in other words, an 'investment in hegemony.' This means expanding the points of convergence and common ground between US interests (pursuit of rebalancing) and the liberal rules-based international order. Investments in advanced facilities such as semiconductors, the shipbuilding industry, the defense industry, and LNG imports are cooperation items that support the US's hegemonic status as an indispensable ally.

In the same vein, Korea must be proactive in addressing issues of unfair practices in its domestic market, which the US points to as non-tariff barriers. President Trump has stated, "[To avoid tariffs, they must] lower their tariffs, dismantle barriers, and stop currency manipulation." The next government must recognize that rectifying domestic unfair practices is related not only to the restoration of US hegemony but also to the structural reform of the Korean economy. Through this process, it should expand imports and achieve a rebalancing of trade.

Second, strengthen diplomacy of solidarity with like-minded countries. The central platform for this is the CPTPP. The majority of CPTPP member countries are US allies (Japan, Australia, Canada, UK, etc.) or friendly nations, and they can play a pioneering role in establishing a liberal multilateral order (managed) without the US. The new administration must develop plans to actively pursue and utilize CPTPP accession.

The key partner in pursuing this task – and the task of supporting the US's hegemonic role – is Japan. Both Korea and Japan are US allies and major trading nations with vital interests in a liberal and open international economic order. Furthermore, as manufacturing powerhouses, they have complementary industrial structures and are linked by close supply chains. Therefore, in terms of trade negotiations with the US, they share a very similar negotiating framework. In terms of perceptions and policies towards China regarding trade, there is also a broad common ground.

Japan is already investing in US global leadership. Following the Abe administration, the Kishida administration has declared that while the US may no longer have the capacity to exercise global leadership, Japan will contribute to the restoration of US hegemonic leadership as an assistant (or a subordinate partner in co-leadership). Japan seeks to actively participate in the strategic readjustment between the US, whose hegemony is declining, and its allies regarding the distribution of responsibilities and privileges, thereby complementing the US's hegemonic status, preventing the strategic fragmentation of the hegemonic bloc, and leading to the restoration and evolution of the existing order. Korea, in a similar position, needs to seek a role that complements US hegemonic leadership. Furthermore, Japan, as the leading country of the CPTPP, should actively support Korea's accession and strengthen cooperation with Korea to expand and deepen the CPTPP.

Third, Korea must reduce its over-reliance on China and the US to an appropriate level as a de-risking strategy. Korea's export dependence on China once reached 28%, indicating an over-reliance, and its dependence on Chinese parts and materials is close to 30%. This pattern involves importing and processing low-cost Chinese components and materials for export to the US and Europe. Since the 2020s, as the risks of over-reliance on China have escalated from an economic security perspective, Korea has pursued 'de-Sinicization' to diversify and reduce this reliance. However, this has resulted in a surge in exports to the US (Korea's trade surplus with the US reached a record high of $55.7 billion in 2024), exposing it to Trump's tariff hikes. Furthermore, the channel through which Korea exports intermediate goods to China and China exports final goods to the US is also facing disruption due to Trump's tariffs.

In essence, Korea is exposed to the risks of over-reliance on both the Chinese and US markets and faces the strategic challenge of simultaneous reduction and diversification. Moreover, as the risks of US-China decoupling rise, it may face the risk of choosing between the two, involving a significant reduction in interdependence with one side, and potentially a weakening of security relations.

In this context, Korea's economic diplomacy must systematically develop a rebalancing strategy towards the Global South, particularly ASEAN and India. Alongside global efforts to curb the spread of protectionism in the Global South, it is necessary to shift towards the Asian market, which accounts for 40% of the global economy, as part of the Indo-Pacific strategy (China+1 ⇒ China+α). ■

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■ Yeol RyuPresident of EAI. Professor at the Graduate School of International Studies, Yonsei University.

■ Managed and Edited by:Chaerin Song, EAI Researcher

    Inquiries and Editing: 02 2277 1683 (ext. 211) | crsong@eai.or.kr