[Commentary] The Trump Shock, Trade War, and Korea's Challenges

YouTube Link: https://www.youtube.com/watch?v=R5pQVmtIY9o

Video Script

The world is currently gripped by the "Trump shock." The Trump shock appears to have unfolded in three stages since President Trump's inauguration this year. The first stage began with the imposition of tariffs on Mexico, Canada, and China, driven by an intention to use tariffs to address illegal immigration or engage in hegemonic actions. The second stage involved imposing tariffs on steel, aluminum, automobiles, and other key industries to revive American manufacturing. Last week's announcement of reciprocal tariffs in April, under the guise of rectifying trade imbalances from a free trade perspective, unleashed a massive tariff bombshell. The U.S. trade deficit reached a record high of $1.2 trillion, approximately 180 billion won, in 2024. President Trump has designated this as an unsustainable emergency situation and has taken corresponding measures.

The decision to impose reciprocal tariffs surprised the world. In reality, it was not entirely unexpected. During the presidential campaign, there were discussions about imposing a universal tariff of 10% and a 60% tariff on China. The actual implementation, with a significantly larger scale, has plunged the entire world into shock. While this directly impacts export-oriented countries like South Korea, it can also be described as a state of confusion and a de facto brake on the global economic order. For South Korea, which has benefited from growth and prosperity within this established order, significant repercussions are unavoidable. This time, even allies were not exempt from the tariff imposition, and in some cases, faced even higher tariffs.

Background and Motives of the Trump Shock

Consequently, doubts about alliances have been amplified by this tariff imposition. I believe this is a significant shock. Today, we have invited two leading domestic experts to discuss various issues surrounding the Trump tariff bombshell and the direction South Korea should take. The first question will focus on why Trump initiated such a seemingly reckless and large-scale action, what he truly desires, and what his ultimate goals are. We will begin our discussion from there. This concerns Trump's second term. Comparing it to his first term, Trump's initial objective was the revival of American manufacturing, which many believed was impossible. This is because the U.S. plays a role in the international division of labor through advanced industries, services, and finance, while the value chain for manufacturing has shifted to Asian countries capable of mass production. Through this, the U.S. has led growth and innovation, yet Trump aims to regain superpower status through rhetoric and manufacturing.

Trump did two things. One is what we know as negotiation or writing books; he published "The Art of the Deal." I recall a very handsome white man releasing a book with Central Park as the backdrop. When the book was released in 1987, he took out full-page ads in The New York Times and The Washington Post, paying for them himself. The content was: "Why do we allow Japan and other countries to benefit for free while they export massively to us and plunder us?" He used the terms "trade deficit" and "plunder," which he uses in every speech. Trump's worldview, as a real estate developer in the 1980s...

With that belief, he thought about how the U.S. provides defense as an ally in manufacturing-based national competition, yet these countries export to us without any gratitude or reciprocation. This was in 1987. He reappeared in 2016, so his worldview has remained unchanged for approximately 30 years. After serving one term as president, he has returned with the same unchanged worldview after 37 years. Now, Japan has been replaced by China, and many other such "Japan-like" entities have emerged.

Countries like South Korea, Vietnam, and Mexico have emerged, so fundamentally, this is a phenomenon stemming from that worldview. Although Trump accomplished much in his first term, in his second term, he made a comprehensive pledge for stronger tariffs. As mentioned earlier, he campaigned on applying a universal tariff of 10% to all countries, which has now risen to 20%. Regarding China, in our 21st-century great power competition, Trump himself stated that the ultimate competitor is the United States, and this is also explicitly stated in the National Security Strategy. It was also mentioned in the Indo-Pacific Strategy. Although Xi Jinping is his "friend of fire," he views him as the ultimate rival. In his first term, this person did not engage in trade agreements with China. He suffered from retaliatory tariffs without fulfilling the Phase One agreement. It's unclear what was done during Biden's four years, but Trump not only implemented this but also fully integrated China into national security.

His goal is to decouple in industries that are core to national security. As one of the execution plans, according to the platform written by his advisors, they aim to prevent China from gaining a foothold in the U.S. with a 60% tariff. In core areas, they intend to completely exclude China from the U.S. They have devised a devastating plan to phase out China over four years and revoke its "Permanent Normal Trade Relations" (PNTR) status, which it gained upon joining the WTO and negotiated with the U.S. during the Clinton administration in 1999, thereby stripping it of its benefits. These developments are progressing steadily. So, why is Trump doing this?

He aims to make America a manufacturing superpower again in the 21st century. Therefore, through bilateral relationships, utilizing tariffs, whether reciprocal or universal, and leveraging America's vast market, he wants to resolve the trade deficit. Furthermore, he wants to attract manufacturing to the U.S., which cannot be achieved solely through domestic investment. Thus, he seeks to attract leading global companies, such as TSMC in semiconductors and Hyundai Motor in automobiles. To achieve these goals, tariff negotiations are crucial. Tariffs must be almost continuous. The moment tariffs are imposed, manufacturing investment commitments can become like hamburgers. Trump's concept of manufacturing includes steel, aluminum, and aircraft – the manufacturing sectors that propelled the U.S. past Britain in the early 20th century. While it may seem absurd to us now, when linked to national security...

In the U.S.-China competition, as we know, manufacturing capacity in areas like shipbuilding and heavy industry is declining. However, since the raw materials involved, such as steel, are crucial, his thinking is not entirely baseless. While the methods are shocking, and it's not solely targeting China but also allies, it has caused shock to us. Trump is fixated on the automotive industry. It's related to steel, automobiles, and semiconductors. Steel is needed to make cars, and steel is needed in all other sectors. In his first term, in 2018, he imposed steel tariffs on both allies and non-allies, citing national security, which led to protests from South Korea, Japan, and Europe.

Despite being allies and not posing a threat, he disregarded these concerns. At times, he stated that Japan, Germany, and South Korea, which have large trade surpluses with us, are no different from Xi Jinping, Putin, or Kim Jong Un. He repeated the same rhetoric this time. Trump does not use the word "alliance" or "values." He doesn't use "align" either. Instead, he uses "friend" for allies, but sometimes his worldview is such that "friends are worse than enemies." These factors, coupled with his broad statements about protecting the automotive industry, manifested in his first term, constrained negotiations, led to the USMCA, and are among the many goals Trump currently pursues, which he attempts to resolve through tariffs, though economists universally deem it impossible.

Numerous articles have been published since April 2nd. The consensus is that "this will not work." While tariffs can be imposed, they cannot achieve the desired outcomes. There was a question about whether there are any good people around the Trump administration. It seems that only those who can execute Trump's ideas are around him. During his first term, those considered "seniors" were globalists. They agreed with Trump's concerns about America but believed that Trump's methods, his unilateral politics, the "rule-based framework," could not be completely changed, and these individuals were eventually ousted.

Looking at Trump's second-term cabinet, Trump declared from the outset that there would be no such globalists in his cabinet. The Secretary of the Treasury and the Secretary of Commerce are all from Wall Street hedge funds, individuals who will stop at nothing to make money. Among those who propose ideas, people like Peter Navarro, who studied international politics at Harvard, are known for their unconventional thinking.

It seems that those around Trump are far from what we consider a "value plan." There appears to be no senior figure in Trump's cabinet who could dissuade him. They are all individuals aspiring to be the next presidential candidate, with J.D. Vance being a prime example. With only two months left in the four-year term, and the ongoing reality for the remaining three years and ten months, I believe we need to consider how we should navigate this situation and how to survive. The consensus is clearly that tariffs alone are insufficient. To give a representative example, the "investment pledges" that Trump boasts about, where investments are made through tariffs, have not actually materialized as investments.

Many people tell me that when considering operating factories in the U.S., American labor costs are three times higher than in Southeast Asia. The question is whether the workforce there is truly disciplined enough to justify these labor costs, given their ability to switch jobs at any time and the lack of quality control. Ignoring the strengths of Southeast Asia, Asia, China, Taiwan, South Korea, and Japan in a manufacturing value chain built over decades and attempting to re-establish it in the U.S. is nearly impossible. Trump's political calculation, that he can win the election and potentially serve another term, takes precedence over economic considerations, as he believes he has four years and can potentially serve longer.

To conclude this point, it is crucial to consider how far Trump will go. Even Trump himself seems unsure, but two factors are important. First, the reaction of other countries. When the U.S. imposes high tariffs of 25%, 30%, or 45%, some countries may negotiate to increase their imports from the U.S. as desired. However, if the U.S. takes such action, other countries will likely retaliate with their own tariffs. China is already imposing a 34% tariff, and the EU will also consider retaliatory measures. Canada will likely do so for domestic political reasons. As the number of such countries increases, Trump may become more emboldened, escalating the scale of tariffs and causing market shocks. Therefore...

It is important to observe how other countries will react. Crucially, the market's reaction is also significant. The market considers three aspects: Wall Street, where stock prices are determined; Main Street, where political sentiment resides; and the 51% who support Trump. How long will they tolerate Trump's experiments? They believe that the U.S. has gone in a strange direction over the past 10-20 years, and Trump is seen as correcting things. Consider DI or Walker Show. It is important to see how long their patience will last. Inflation is also a key factor here. During his first term, despite a 25% steel tariff, a 10% aluminum tariff, and a full-scale tariff war with China, inflation did not rise significantly. Those around Trump suggest that if this is managed well, the inflation surge will not be severe. This is an area to watch.

Trump's Ultimate Goals and the Transformation of the International Order

Too many variables are at play right now. Trump desired to be remembered for two things upon leaving office. First, regarding China, previous presidents believed that China would become a responsible player within the rules-based multilateral system they had created. However, since China did not act accordingly, he wanted to be remembered as the first president to declare all-out war on China. He likely wants to be remembered as the president who used tariffs as a tool against China to increase its imports of American goods and ensured their implementation. Second, in the 21st-century great power competition, he likely wants to be remembered as the president who initiated the transfer of some manufacturing capabilities back to the U.S., rather than relying on core ideas or R&D. Thank you. Professor, what are your thoughts? You've provided many important insights. Indeed, these are very shocking measures, and while I anticipated protectionist measures and other new actions, the imposition of reciprocal tariffs on April 2nd was, in fact...

It can be seen as a significantly unprecedented measure that goes beyond what we generally consider protectionist measures. In my opinion, this represents a decisive expression of the U.S.'s long-standing dissatisfaction with the current system and the WTO framework, which has been gradually strengthening since the establishment of the GATT system in 1947, and crossing a point of no return. Regardless of whether the tariff measures are sustainable, how much they achieve the desired outcomes, or how the system is altered in the process, as Professor Choi mentioned, the formation of such tensions and the implementation of such measures suggest that the multilateral system as we know it will no longer function effectively. The reciprocal tariffs announced on April 2nd decisively demonstrate this.

Previously, when referring to protectionist measures, there were agreements, whether WTO agreements, South Korea's FTAs, or USMCA, within which specific measures were taken, domestic products were favored, or foreign products were discriminated against. This was often done in parallel until recently, and when it worked well...

During Trump's first term and the Biden administration, this was expanded to strengthen sanctions under the guise of national security, irrespective of existing agreements. They still found ways to circumvent agreements or made new claims. However, the current reciprocal tariffs are simply implementing prohibitions from the outset. This differs from previous protectionism and can be seen not as protectionism but as the U.S. advocating for a form of temporary, U.S.-centric managed trade, seeking short-term gains through negotiations with trading partners, and ultimately proposing an idea to establish a new form of normative order based on this. There seem to be two aspects to this. First, immediately, as the situation is urgent, each country...

is likely in a state of panic. For example, in South Korea, there are issues of negotiating with the U.S. regarding 25% tariffs, tariffs on steel, aluminum, automobiles, and semiconductors, and determining how to coordinate these and how much to reduce them. Furthermore, looking at the longer term, if this represents a new form of trade order, we need to consider how to participate in this new order and how to secure our interests. Currently, our government, businesses, and everyone's thinking is still focused on the existing free trade and multilateral system, leading to attempts to find solutions, change laws, and pursue industrial policies within that framework.

has increased. However, if the fundamental structure itself changes, the long-term ripple effects will inevitably be diverse and multifaceted, and such developments will continue to occur. We need to consider this as a long-term challenge. It is a paradigm shift. The existing WTO system is coming to an end, and we are moving towards a new paradigm through U.S.-led managed trade. It is difficult to predict how this will evolve, but the framework of countries forming groups based on the most-favored-nation principle and pursuing free trade through unified rules, which we have become accustomed to, must now disappear.

Ultimately, reliable countries, countries aligned with U.S. interests, or countries that share common ground with the U.S. for various reasons will form bilateral or plurilateral agreements within groups, and trade will be conducted with a degree of stability within those frameworks. Stable trade does not equate to free trade; it will be a low-intensity system involving a small number of participants, with various exceptions, national security carve-outs, trade balance considerations, and diverse cross-compliance measures, and it will be an open framework with the possibility of regular review and modification. The initial step in this direction is the bilateral agreements that the U.S. is currently advocating.

The current step, where we cooperate, consult, and negotiate with the U.S. and receive access through these frameworks, seems to be the first step. If this evolves, perhaps to plurilateral agreements involving a few countries, such as South Korea, Japan, and Canada, it is likely to move in that direction.

Concurrently, while dispute resolution procedures, panels, and international organizations will remain, attempts at meaningful resolution through these channels may become difficult. Most disputes will likely be resolved through political coordination or technical legal solutions, with broader national issues addressed through political and diplomatic channels. This is the type of dispute resolution process we can anticipate.

Professor Lee Jae-bin views the GATT and WTO systems as having ended, and the world shifting towards creating a new trade order. However, after enduring Trump's four years, is there not a possibility of the U.S. returning to globalization, or "re-globalization"? As the East Asia Institute focuses on internet order, we must consider whether the internet order is being upgraded from what we know, whether globalization is ending, or if it is something else entirely. The WTO negotiations began in the 1980s and concluded in 1993; is this not the beginning?

The crucial difference between the existing GATT and WTO lies in the implementation of international agreements. Specifically, can weaker nations rely on a credible process for implementation when stronger nations do? Under GATT, if the U.S. or other powerful nations said 'okay' to the panel, it was over. However, the WTO established a sophisticated quasi-judicial system with panels and appellate bodies to enforce implementation. This was considered a significant achievement of the WTO.

The U.S., which created such a system, is now withdrawing. If the U.S. withdraws, will it completely disappear? I am cautious about this. Even if the U.S. withdraws, the remaining countries will still be there. Over the next four years, as the U.S. under Trump imposes tariff bombs and engages in unilateral managed trade, countries like South Korea, Japan, China, and the EU, which collectively represent a significant portion of international trade excluding the U.S., must be observed to see if they can still deny the existing WTO MFN principle, even if the WTO's dispute settlement system is not functioning. While there may not be momentum for new negotiations, the dispute settlement system that ensures existing implementation is largely... The Appellate Body members were not appointed because the U.S. claimed the appellate system violated U.S. trade sovereignty during the Obama administration...

The system was not appointed. If the U.S. withdraws and this happens, it is conceivable that China and the EU might form an alliance. Although their ideologies differ, abandoning this framework would be too convenient. Finding alternative solutions would also be difficult. The idea of 'let's do it among ourselves' requires significant imagination. Because everything else is so chaotic, even if disputes do not arise, why would they abandon the existing convenient arrangements? This is open-ended. The U.S. withdrew from the TPP, but the remaining countries created the TPP. Similarly, even if the U.S. withdraws, the WTO system itself may lose meaning, but will the remaining countries...

simply leave the WTO framework? That might not be the case. We need to pose these questions and examine them. I differentiate this from globalization. Since the WTO was established in 1995, there have been no trade liberalization negotiations that have been significantly differentiated. However, above that, we see the global spread of e-commerce and digital spaces. Every meeting discusses digital trade, but this is primarily between countries, and there are still specific issues regarding the movement of people and ideas internationally. The bigger problem is not trade itself, but issues arising at the intersection of trade and security. If the WTO without the U.S. is established, can China effectively impose restrictions when proposing initiatives to other countries? Especially in trade, the significant role...

of the EU or South Korea, can these countries accept such proposals? The CPTPP, even without the U.S., consists only of countries that still maintain a free trade system. In fact, from my perspective, the momentum might lead to a bloc of free-world countries centered around the CPTPP. Professor Lee Jae-bin has a different view and sees it as the center. For the CPTPP to gain momentum, it needs to attract more countries, and it might develop in that direction.

Whenever this topic arises, there is considerable discussion about South Korea's participation in the CPTPP. While there are political considerations for South Korea's decision regarding the CPTPP, the conditions for South Korea's accession, considering non-political factors, have a significant history. In fact, we should have participated in the TPP negotiations before the CPTPP, but we missed that opportunity. At that time, the Park Geun-hye administration questioned the need for a redundant TPP when most countries were already part of it. Additionally, the previous Lee Myung-bak administration faced political burdens due to its inability to fully resolve the beef import issue with the public. Furthermore, among the major countries, China was not a participant. Thus, we faced a choice. That period has passed, and when the TPP was launched, the Park Geun-hye administration suddenly wondered why we weren't participating. I still recall that President Park gave a speech in the U.S. at CS...

...stating that we had become the first country to join the TPP. Subsequently, the political landscape shifted to the Moon Jae-in administration. As you know, relations between South Korea and Japan were extremely poor, and Japan was very proud of establishing the CPTPP. They were in a position to gain some leverage by having other countries join the CPTPP they created. They maintained a very reserved stance towards South Korea, and given the economic disputes between South Korea and Japan at the time, it was the worst possible condition for accession. During the early part of the Moon Jae-in administration, we spent time where the assertion and preparation for CPTPP accession completely stalled. However, the situation has now changed, and from Japan's perspective, they would welcome South Korea's participation. Therefore, the external conditions are not unfavorable, but the domestic political situation remains uncertain... I have been researching trade negotiations and trade policy for decades...

...and have found that South Korea's trade negotiation issues and liberalization issues have always been rigid. However, in retrospect, the feared consequences have rarely materialized when negotiations proceeded despite opposition. This includes the screen quota system, U.S. agricultural imports, and beef imports. South Korea is the top importer of U.S. beef? This has been proven in simultaneous negotiations as well. Conversely, when we recovered domestically, political parties excluded certain sectors, leading to non-imports. A prime example is our financial industry. Therefore, based on the past 35 years of experience, where South Korea's unique cultural codes and the roles of its business leaders, along with global market dynamics, have led to reforms and liberalization despite difficulties, ultimately resulting in a net positive outcome, we have accumulated valuable lessons. If our politicians internalize these lessons, then something like the CPTPP could be a crucial card to navigate the Trump tariff bombshell...

...and they should possess the wisdom to utilize it. However, if the discussion merely revolves around politically burdensome issues for the current administration, then the only reform South Korea will undertake in the 21st century is the KORUS FTA. Therefore, we likely need to think in this manner. However, there are many areas where we can exercise our imagination. Beyond the U.S., we have the KORUS FTA, which is still in effect. There is no reason to replicate the same approach with the EU. The CEPA agreement with India was a precursor to an FTA, as India's economic growth was rapidly accelerating at the time. Now that India has grown significantly, we can upgrade that agreement. Therefore, while the U.S. must be addressed separately, if we refine and rebuild our FTAs in the early 21st century as a hub country, it will be sufficient for us...

...to have new opportunities, such as with ASEAN... ASEAN is almost... Yes, those should also be upgraded. Agreements like Korea-Vietnam and Korea-India are being steadily upgraded. Incidentally, on April 2nd, the "Liberation Day" reciprocal tariffs imposed by Trump target China, India, Vietnam, and Colombia – countries where South Korea's manufacturing sector has diversified its value chain to create a "China Plus One" strategy. Ultimately, the final export market is the U.S., and Trump is targeting this precisely because he knows it. Therefore, we cannot proceed as usual. Vietnam needs to be vigilant. One of the countermeasures is to strengthen free trade among these countries, excluding the U.S. If we continue to develop this discussion, what will happen is that Trump's "Make America America First" could inadvertently lead to a division of the global trading system into two poles: a bilateral relationship between the U.S. and other countries, and a world where other countries operate under their own order and rules, beyond U.S. control...

...with their own order and rules. The U.S. will have no influence in that sphere. In the past, even if there were disputes within the WTO, the U.S. had the power to set, redesign, and execute them. Now, if the U.S. proceeds in this manner, its influence in international trade order will be significantly narrowed. Whether these concerns are part of Trump's calculations is currently unknown. It seems to be part of a long-term strategy. However, I believe there is one positive aspect. We have finally shed our attachment to FTAs or the WTO. We can no longer rely on them to negotiate or argue our case, especially since our tariff rates are 0%...

The relationship with the U.S. will likely fluctuate in the coming period, but it will continue without major issues within this framework. Just as other countries are doing, especially from South Korea's perspective, finally breaking free from this is, in my view, a crucial starting point. The fact that we are moving towards a realistic approach of "what to do next" after shedding our attachments is an important starting point. Therefore, in the immediate future, there are several areas where the U.S. wants to cooperate or collaborate with South Korea, and indeed needs to. In these areas, we will actively seek South Korea's cooperation and collaboration, and through this, we will partially meet the U.S.'s demands and desires. In return, we will aim to secure stable U.S. exports for our products, and while not to the same extent as before, achieve the reflection of our interests in certain product categories. This is likely to be the most important...

...aspect moving forward. Recent developments indicate that the WTO is no longer mentioned. Occasionally, the KORUS FTA is brought up, with discussions about whether to revise it or how to proceed if revision talks emerge. However, in my opinion, this has become largely pointless. Ultimately, the crucial transformation lies in determining how much of the U.S.'s current demands South Korea can accommodate and what aspects we can present to the U.S. Through this, finding areas of cooperation, compromise, and concession between the two countries is key. While various discussions are ongoing, let me ask just one question: to avoid Trump's tariff bombshell, he demands that countries lower their tariffs, dismantle non-tariff barriers, and cease currency manipulation. If we reciprocate by dismantling our tariff and non-tariff barriers and create an environment where U.S. products can be more readily sold, and if we adopt a more moderate stance on currency issues, could this not be considered Trump's own wording? We can think of it this way, but the problem is that many of the so-called non-tariff barriers that the U.S. refers to are difficult for us to change. While some can be modified, such as import regulations or financial measures, if we approach this more proactively from a technical standpoint, we can undertake internal adjustments and legal reforms to accommodate some of the U.S. demands regarding non-tariff barriers. However, a significant portion of what are called non-tariff barriers are genuinely difficult for us to improve or change; in some cases, they represent differences in national policy or perspective, making it difficult to...

...resolve or alter them in the short term. Currency manipulation issues are similar. There is ongoing debate about whether they constitute trade-distorting measures within the scope of currency policy or are simply economic policies. Therefore, these aspects can be considered representative measures where we cannot fully accept or comply with the non-tariff barriers mentioned by the U.S. The non-tariff barriers and currency issues mentioned by President Trump ultimately focus on the question of "Why don't you buy more American products?" or "Why aren't they selling?" The reasons behind this are of little concern to President Trump or his close associates. While 1 million Korean cars are sold in the U.S., why aren't American cars selling in Seoul, for whatever reason? Regardless of the accuracy of the statistics, President Trump's remarks on April 2nd, stating that 81% of cars operating in Seoul are 'Made in Korea,' essentially imply: for whatever reason, why aren't American cars selling in Seoul? I understand this to mean that we must take responsibility for creating an environment where American products, whether agricultural or manufactured goods, sell more in trading partner countries. To fulfill this, as mentioned, we must rationally, proactively, and actively consider and find solutions for the non-tariff barriers that we can resolve, and demonstrate our efforts to the U.S. and other countries. Furthermore, within the possible scope, we must consider how to promote the sale of American products within the Korean market, not just through tariff or non-tariff barriers, but by ensuring that American products can somehow...

...increase their sales in the Korean market at a reasonable level. This will be an important task moving forward, as it will serve as a method to appropriately adjust the trade surplus, or in the U.S. perspective, the trade deficit. Thirdly, we must demonstrate our commitment to resolving U.S. security concerns and provide support in areas such as defense cost sharing, shipbuilding, semiconductor supply chains, biotechnology, and LNG energy, as requested by the U.S. By doing so, we can alleviate U.S. trade concerns, such as our perceived inability to sell American products effectively, and demonstrate our cooperation in addressing areas of U.S. security concern. This will be crucial for overcoming the current situation. The measures I have described cannot be resolved within the existing framework, although that framework will continue to operate; it will be difficult to solve our problems solely within it. We must seek solutions outside that framework. The shock is unavoidable, but the task ahead is to seek a soft landing rather than a hard landing. One more point: due to Trump, we have hardly discussed our relationship with China. While we have been unable to restructure areas like petrochemicals, China is gradually entering. Recently, China's low-price offensive has intensified, causing significant market disruption.

Therefore, we must consider how to approach our policy towards China. If the trade system fragments into various forms outside the WTO framework and operates beyond established norms, China will seize the opportunity. China possesses strengths in manufacturing, considerable technological capabilities, and crucially, a high level of competence in the digital economy. By effectively combining these, China will have numerous opportunities for trade activities beyond the scope of WTO agreements, Korea-China FTAs, or RCEP. From China's perspective, opportunities are likely to increase for government support to state-owned enterprises, market entry into South Korea through overseas direct purchase platforms, or expansion into neighboring markets with various forms of low-priced goods. If this trend continues, it is possible that China, rather than the U.S., will find more opportunities to enter the international market, open markets, and economic markets, free from U.S. containment. The U.S. is focused on defending its domestic market and revitalizing manufacturing, so while the U.S.-China competition emphasized during the Biden administration will continue, the U.S. must currently focus on its own manufacturing, domestic politics, and economic recovery. Therefore, the existing U.S. containment or sanctions against China are likely to be difficult to maintain going forward.

Geopolitically, U.S.-China competition will continue, but in terms of trade alone, the environment is becoming more favorable for China to find opportunities. Of course, this assumes that the Chinese economy faces difficulties, but in terms of trade flows alone, China's potential is increasing. This means that China's expansion into South Korea and the entry of Chinese products into the Korean market will further increase. Products that face difficulties entering the U.S. market will inevitably come to South Korea. As various new attempts emerge, I wonder if South Korea's vulnerability to the influx of Chinese products into its market is increasing.

It is difficult. China's role for us and how it views South Korea are crucial. The issue is further complicated by the intertwining of trade, commerce, and security. From China's perspective, South Korea has been perceived as the weakest link among U.S. allies. Domestic public opinion in South Korea is divided on the U.S.-China issue, and its stance shifts significantly depending on the administration, making it disadvantageous for us. Our strength lies in the fact that while facing U.S. pressure, when considering how Trump will end this, the U.S. also has weaknesses. Trump promised investment in factory construction to create a manufacturing superpower, but the U.S. system is slow to bring products to market. Factories must actually operate. If we can contribute in the manufacturing sectors that Trump needs, we can bring benefits without provoking Trump. For example, China cannot be relied upon for shipbuilding or warship construction, nor for building AI data centers, energy, or aircraft purchases. Therefore, in these advanced manufacturing sectors where China has surpassed us or is closing the gap, there may be opportunities for us, or even a chance to reverse the trend.

Our business leaders certainly think so. During Trump's four years, he strengthened U.S. manufacturing and pressured China with tariffs, reaching nearly 100% for China. In his first term, tariffs increased by 20%, and in his second term by 10%. Tariffs on Venezuelan crude oil imports were 25% and 33%, and on trucks, they were already 70%. They are approaching 100%, making it impossible to trade. This presents an opportunity for us. The issue is that if they say, "We truly need Korea's help to 'Make America Break,'" then there will be opportunities for our manufacturing sector. The opportunity in manufacturing ultimately lies in politicians leveling the playing field for our companies in the manufacturing competition with China. In other words, industrial policy and labor policy are needed. We must provide at least equal treatment to Chinese companies receiving political benefits. We must treat them almost identically to how Europe does. If we approach this sector populistically or frame it as anti-American or pro-China, we will have no opportunity. This is the potential for failure to revive. I used to dismiss such talk as "wordplay," but now we must prove that "the survivor is the strong one." South Korea's exports were a means to import. The reason for developing from an agricultural nation to manufacturing and advanced manufacturing was not only our ability to produce well but also because we had strengths in areas like automobiles, steel, and semiconductors. This was to import raw materials like crude oil and agricultural products that we lacked. These...

...were supported by the rule-based multilateral system, which is now shaking. This is more so than for other countries. The manufacturing sector accounts for the highest proportion of GDP among G7 countries. Since Trump is shaking up manufacturing, it is a double shock for us. However, we should not view this solely as negative. We must survive, and as our opinions suggest, there are opportunities for survival. However, no matter how good the opportunities are, they must be seized. Businesses will adapt. But for adaptation to be less difficult and painful, the role of politics is crucial.

Politics must assist in maintaining careers in the manufacturing sector. At the very least, it should not be disadvantageous compared to the support provided by other countries like China, Japan, and Europe to their own companies. To summarize briefly: First, Trump's tariff bombshell is a shocking event that disrupts the existing order. Therefore, future responses must involve short-term negotiations with Trump's U.S. to resolve South Korea's trade, particularly export-related, issues effectively. Long-term, a systematic response is needed by accurately forecasting and understanding the direction of the future trade order. Second, some changes in trade flows are inevitable within this context. Therefore...

South Korea's economic diplomacy must significantly expand its strategic space beyond the existing U.S. and China-centric approach to include Japan, Southeast Asia, India, Australia, and even Europe. The CPTPP, emphasized by Professor Choi Byung-il, needs to be effectively utilized. Fourth, the U.S. is requesting an increase in South Korean imports. From our perspective, we must proactively address those actions that we consider unfair practices, within our capabilities. This not only aligns with U.S. demands but also necessitates structural reforms to enhance the competitiveness of the South Korean economy and industry.

Finally, to sustain South Korea's manufacturing competitiveness, political efforts are essential to survive Trump's tariff bombshell and to endure the fierce pursuit and competition from China. At the very least, considering the support that European, Japanese, and Chinese companies receive from their respective governments, we need to approach this issue with greater flexibility. Professor Choi Byung-il and Professor Moon Jae-in, thank you for your valuable time and for participating in this discussion. We will now conclude today's dialogue.

The foundation supporting these elements is the roll-base manufacturing sector, which is currently experiencing instability, more so than in other countries. The manufacturing sector's share of our total GDP is the highest among G7 nations. As Trump's policies disrupt manufacturing, we face a dual shock. However, this should not be viewed solely negatively. Survival requires wisdom, and as our discussions indicate, opportunities exist. Regardless of the opportunities presented, they must be seized. Businesses will adapt, but to ensure adaptation is less difficult and painful, the role of politics is ultimately crucial.

Politics must support the continued maintenance of careers in the manufacturing sector. At the very least, it should not place us at a disadvantage compared to the support provided by other countries such as China, Japan, and Europe to their domestic industries. To summarize briefly, first, Trump's tariff hikes are a shocking event that disrupts the existing order. Therefore, future responses must involve negotiating well with the United States under Trump to resolve issues related to Korea's trade, particularly exports, in the short term. In the long term, a systematic response is needed by accurately forecasting and understanding the future direction of the trade order. Second, within this context, some degree of change in trade flows is inevitable. Therefore,

Korea's economic diplomacy must significantly expand its strategic space beyond the existing US and China-centric approach to include Japan, Southeast Asia, India, Australia, and furthermore, Europe. Professor Choi Byung-il's emphasis on effectively utilizing the CPTPP is necessary. Fourth, while the US is requesting an expansion of Korean imports, we must proactively address those aspects that we perceive as unfair practices and are within our capacity to manage. This serves not only to meet US demands but also to enhance the competitiveness of the Korean economy and industry through necessary structural reforms.

Finally, to sustain Korea's manufacturing competitiveness, political efforts are necessary to survive the impact of US tariffs under Trump and to maintain competitiveness amidst the fierce pursuit and competition from China. At the very least, considering the support provided by Europe, Japan, and China to their domestic industries, we need to adopt a more flexible approach in this regard. Professor Choi Byung-il, Professor Moon Jae-in, thank you for sharing your valuable time and engaging in this discussion today. We will now conclude today's dialogue.

Thank you very much. Thank you. Yes, thank you.

Full Transcript

Q1. "Tariff Bombshell on "Liberation Day": "Trump Shock and the Great Upheaval of the Existing Trade Order"

Son Yeol: Hello. I am Son Yeol, Director of the East Asia Institute. Today, the world is gripped by the "Trump shock." This year marks the third stage since President Trump's inauguration. The first stage began with the announcement of tariffs on Mexico, Canada, and China. This started with the intention of using tariffs to block illegal immigration or fentanyl. The second stage involved imposing tariffs on steel, aluminum, automobiles, and other key industries to revive American manufacturing. Last week, on April 2nd, reciprocal tariffs were announced, unleashing a massive tariff bombshell under the guise of "Reciprocal Trade" to comprehensively rectify trade imbalances.

The U.S. trade deficit, according to U.S. figures, reached approximately $1.2 trillion, or about 180 billion won, in 2024, a record high. President Trump has designated this as an unsustainable emergency situation and decided to impose reciprocal tariffs, surprising the entire world. In reality, it was not entirely unexpected.

Our businesspeople are definitely thinking along those lines. During Trump's four years, he strengthened U.S. manufacturing and pressured China with tariffs, reaching nearly 100%. Tariffs were raised by 20% during Trump's first term and 10% during his second. Tariffs on Venezuelan oil imports were 25% and 33%, and on trucks, they were already 70%. They are nearly 100%, making it impossible to proceed. This presents an opportunity for us, but the problem is if they use terms like 'alliance' or 'partnership' to say, 'You really need Korea's help,' then there will be opportunities for our manufacturing sector. The opportunity for manufacturing ultimately lies in politicians leveling the playing field for our businesses in the competition with China. In other words, industrial policy and labor policy are needed. We must be treated at least equally to the political benefits Chinese companies receive. We must be treated almost exactly as Europe is. If we approach this area with populism or an anti-American, pro-China frame, we will have no opportunity. This is the possibility of saving what cannot be saved.

I used to think it was 'wordplay' when someone said something like this, but now we will have to prove that 'the survival of the fittest' is true. South Korea's exports were a means to import goods. Our development from an agricultural nation to manufacturing and advanced manufacturing was due to our ability to produce well, but also because we had sectors where we held strengths, such as automobiles, steel, and semiconductors. These were for importing crude oil and agricultural products that we lacked. Such

During the presidential election campaign, there was a pledge to impose a universal tariff of 10% and a 60% tariff on China. This has been implemented, and the scale itself has been announced as much larger, causing shock worldwide. While this directly impacts exports for trading partners like South Korea, more broadly, it can be described as the global economic order falling into chaos and effectively collapsing.

South Korea, which has enjoyed growth and prosperity within this existing order, is expected to suffer a significant blow. This time, even allies have not been spared from tariff bombs, and in some cases, even more severe ones. Therefore, I believe that doubts about alliances have also been amplified by these tariff bombs. Today, we have invited two top domestic experts to discuss various issues surrounding Trump's tariff bombs and the path forward for South Korea.

Q2. Underlying Factors of Tariff Imposition: "A Combination of Distrust in Alliances and Political Intentions, Transcending Economic Rationality"

Son Yeol: First, I believe questions will continue to grow about why Trump has imposed such recklessly large tariff bombs, what he truly wants, and what his ultimate goals are. Therefore, I would like to start by asking about that.

Choi Byung-il: This is Trump's second term. Compared to his first term, Trump made the revival of U.S. manufacturing his mission from the outset. During his first term, many people considered Trump's goal of reviving U.S. manufacturing to be anachronistic. This is because the U.S. currently plays a role in the international division of labor through advanced industries, services, and finance, while manufacturing has shifted to Asian countries capable of mass production at low costs, and the global value chain has been formed in such a way that the U.S. continues to lead growth and innovation. So, the idea of reviving manufacturing seemed absurd. I wonder if he is resorting to the same tactics again.

In 1987, Trump did two things that many historians are now focusing on. One is the book on negotiation that we are all familiar with, "The Art of the Deal." I can never forget the cover of that book, with a very handsome blond white man standing against the backdrop of Central Park. I still remember seeing it in airport bookstores.

That year, he took out full-page advertisements in The New York Times and The Washington Post, at his own expense. The content was: "Why do we protect allies like Japan, allowing them to enjoy free security while exporting massively to us? Why are they robbing and plundering us?" The expressions Trump uses today, such as 'rip-off' and 'rape,' first appeared then.

Looking at Trump's worldview, as a Manhattan real estate developer in the 1980s, he believed that the U.S. had won against emerging manufacturing nations. Now, even though they have become allies and we provide them with protection, they are ungrateful and do not contribute to defense costs. This was his perception in 1987, and he maintained this belief for over 30 years until he ran for president in 2016.

He served one term and is now making a comeback for a second term, still holding the same worldview that hasn't changed in 37 years. Now, that 'Japan' has been replaced by 'China,' and furthermore, many 'Second Japans' have emerged. These include South Korea, Taiwan, Vietnam, and Mexico. Ultimately, this is an extension of that worldview.

Therefore, although Trump did many things in his first term, he has more powerful tariff pledges for his second term. As Director Son mentioned, he campaigned on imposing a 'universal 10% tariff' on all countries, and it has now risen to 20%. Regarding China, during the U.S.-China 21st-century hegemony competition, Trump already recognized China as the ultimate rival during his first term, as stated in national security reports, and the Indo-Pacific strategy was formulated then.

Although Trump calls Xi Jinping his 'great friend,' he ultimately sees him as the final rival. Didn't Trump bring China to the negotiating table during his first term and reach a trade agreement? However, he left the White House before the Phase One agreement could even be implemented. What has been done during Biden's four years?

Not only will he implement this upon his return, but his goal is to completely decouple China from industries crucial to national security. As part of several action plans outlined by his advisors, the platform suggests imposing tariffs of about 60% to prevent China from even entering the U.S. market.

Furthermore, he plans to completely exclude China from key sectors, phasing them out over four years. He has also declared his intention to revoke China's MFN (Most Favored Nation) status, which it enjoys as a WTO member, by stripping it of the PNTR (Permanent Normal Trade Relations) status that China negotiated with the U.S. during the WTO accession process under the Clinton administration in 1999. These actions are proceeding systematically.

So, why is Trump doing this? There is a plan to make America the superpower of 21st-century manufacturing again.

Therefore, through reciprocal tariffs or universal tariffs led by the U.S., he wants to use his power and America's vast market in bilateral relations to resolve trade deficits and bring manufacturing back to the U.S. Since this cannot be achieved through U.S. investment alone, he wants to increasingly attract leading global companies in those manufacturing sectors. For semiconductors, TSMC holds a larger portion, and for automobiles, Hyundai Motor holds a larger portion.

To achieve such goals, tariffs are not for negotiation; they must be maintained. Because the moment tariffs are removed, the promise of manufacturing investment can become empty words.

The manufacturing sectors Trump is focusing on are steel, aluminum, and aircraft. These are the industries that made the U.S. a manufacturing powerhouse, surpassing Britain in the early 20th century. While this may seem absurd to us now, when linked to national security, as the U.S. competes with China, and as manufacturing capabilities, such as shipbuilding, are declining, and as materials like steel and aluminum are involved, his thinking might not be entirely unfounded.

The methods are extreme and shocking, but it's not solely targeting China; it's encompassing allies as well, which is why it's even more shocking to us.

Furthermore, Trump is focusing on the automotive industry. We can consider steel and automobiles as the two main areas of focus, as steel is a crucial material for manufacturing cars and forms the basis for all other sectors.

In 2018, during his first term, under Section 232, citing national security—though in reality, there was no time to cite national security—tariffs were imposed on steel from both allies and non-allies, leading to protests from South Korea, Japan, and Europe. They argued, 'Why are you threatening our national security when we are your allies?' However, Trump disregarded these concerns, sometimes stating that countries like Japan, Germany, and South Korea, which had large trade surpluses with the U.S., were worse than Xi Jinping, Putin, or Kim Jong Un. He said the same thing this time.

Trump does not use the word 'alliance' or 'values.' He uses the word 'friend' instead of 'alliance,' and sometimes he operates with a worldview where 'friends' are worse than 'enemies.' These are concerning aspects. To protect the automotive industry, during discussions on the rule of law, he renegotiated the NAFTA agreement in his first term and changed its name to USMCA.

Son Yeol: While Trump is pursuing various goals, the general consensus among economists is that these cannot be achieved through tariffs. Numerous articles have been published since April 2nd, all stating that tariffs are unlikely to be effective. While tariffs can be imposed, it is difficult to achieve Trump's desired outcomes through them.

Choi Byung-il: I question whether Trump has good people around him. It seems he only has people who can execute his ideas. Looking back at his first term, the so-called 'seniors' were globalists. They sympathized with America's problems but believed that unilateral actions like Trump's could not completely overturn the rules-based free and open trade order. However, they were all dismissed. When Trump formed his second-term cabinet, he made it clear from the start that 'there are no globalists in this cabinet.'

The current Secretary of the Treasury and Secretary of Commerce are both from Wall Street, involved in hedge funds, people skilled at making money. They are individuals who close deals by any means necessary. Those who come up with ideas include figures like Peter Navarro, who studied international relations at Harvard, and his heterodox thinking is already well-known.

It seems that Trump is surrounded by people who have no connection to the values or norms we hold. Therefore, there are no senior officials in the current cabinet who can restrain Trump. They are all aspiring to be the next Trump, the presidential candidate in 2028, with J.D. Vance being a prime example.

Only two months have passed in his four-year term, with three years and ten months remaining. I feel we need to think more about how we should proceed and how we can survive.

What is clear is the consensus that tariffs alone will not solve the problem. A prime example is Trump's boast that 'tariffs led to increased investment,' but this is merely a flat investment trend; actual investment has not materialized.

So, how can one operate a factory in the United States? Many people tell me that labor costs in the U.S. are about three times higher than in Southeast Asia, and they question whether the people working there are truly disciplined workers who command those wages. They are not. They can quit at any time, and quality control is not properly managed. The manufacturing value chain, formed over decades, has strengths in Southeast Asia, Asia, China, Taiwan, South Korea, and Japan. Completely ignoring this and trying to bring it back to the U.S. is nearly impossible.

Nevertheless, this is not important to Trump. 'I need to achieve results during my four-year term, secure 51%, and win in swing states to run again.' This phenomenon occurs because political calculations override economic improvements.

Q3: Trump's Ultimate Goal? 'Aggression Towards China and the Revival of U.S. Manufacturing'

Choi Byung-il: Since the topic has come up, I'd like to add a bit more before concluding. Will Trump go all the way? This is very important. How far will he go? Although Trump himself may not know, I believe two things are crucial.

One is the reaction of the other countries. When the U.S. imposes high tariffs of 25%, 30%, or 45%, some countries may negotiate to increase imports as the U.S. desires, while others may respond by saying, 'If the U.S. acts like this, then we will impose retaliatory tariffs.'

Like China. China is imposing a 34% tariff in return. The EU will also have to consider retaliation, and they will decide whether it's full-scale or partial retaliation. Canada will have to do it for domestic political reasons. The more countries that do this, the more Trump will become agitated and escalate tariffs, throwing the market into shock. Therefore, the reaction of other countries is important.

Crucially, there is the issue of how the market will react. The market can be viewed in three ways. There is Wall Street, with its stock prices. Then there is Main Street, with its political stock. The 51% who supported Trump on Main Street seem willing to tolerate his experiments to a certain extent. They believe, 'The U.S. has gone in the wrong direction for the past 10 or 20 years. Trump is doing something new and right. Things like DEI, woke culture.' Therefore, the key is how long their patience will last.

What is important here is inflation. During his first term, even with 25% steel tariffs, 10% aluminum tariffs, and a full-blown tariff war with China, inflation did not rise significantly. People around Trump are debating whether this will lead to serious inflation or not, so we need to watch that aspect. Currently, there are too many variables at play, leading to a very chaotic situation.

Trump wants to be remembered for two things upon leaving office. The first is regarding China. Many previous presidents believed that China would become a responsible player within the rules-based multilateral system they had created. However, judging that China has not done so, he wants to be remembered as the first president to declare all-out war on China. He also seems to want to be remembered as the president who used tariffs as a tool against China, leading to increased U.S. imports through negotiations and ensuring their implementation.

Second, in the process of 21st-century hegemony competition, he wants to be remembered as the president who initiated the transfer of some manufacturing capabilities back to the U.S., even without having core R&D capabilities or key ideas.

The Role of the New Trade Order and CPTPP

Q4: Outlook for the World Trade System: 'From a Principle-Based Multilateral Order to a Selective Bilateral/Plurilateral System Based on Strategic Interests'

Son Yeol: Yes, thank you. Professor Lee Jae-min, how do you view Trump's tariffs?

Lee Jae-min: You have made many important points. These are indeed shocking measures. While we anticipated protectionist policies and other new measures, the imposition of reciprocal tariffs on April 2nd goes beyond what we generally consider protectionist measures; it is a significantly unprecedented action. I have mentioned this before. In my opinion, this is the first such event since the launch of the GATT system in 1947. This event has significance in many ways. First, America's dissatisfaction with the current system and the WTO system, which has been gradually strengthening, has now decisively erupted, and I believe we have crossed the Rubicon.

As Director Choi mentioned, regardless of the sustainability of trade measures, whether the U.S. can achieve its goals through tariffs, and issues of institutional change, the May 2nd decision on mutual tariffs demonstrated that the multilateral system as we know it can no longer function effectively when facing tensions with multiple countries over such measures. Previous protectionist measures were either actions taken within the framework of agreements (WTO, Korea-U.S. FTA, USMCA, etc.) or forms of checks and sanctions aimed at encouraging the purchase of domestic goods and discriminating against foreign goods.

Recently, as these measures expanded and proved ineffective, the Trump and Biden administrations escalated them by framing them as national security issues to strengthen sanctions. While various approaches were still attempted within the framework of agreements, with new arguments being made, the recent tariff measures have applied provisions that have been prohibited from the outset by Article I of the GATT. Therefore, they differ in nature from previous protectionism; rather than protectionism, they appear to be an idea for a temporary, U.S.-centric managed trade system, through which the U.S. seeks short-term gains by negotiating one-on-one with trading partners and aims to establish a new normative order based on these gains.

There are two main aspects. First, for the immediate future, each country will be preoccupied with resolving its own pressing issues. South Korea, for instance, must cooperate with the U.S. in the short term on countermeasures and tariff reduction regarding 25% tariffs on items such as steel, aluminum, automobiles, and semiconductors. Second, if this represents a new form of trade order, we must also consider the long-term aspect of how we will participate in this order and protect our national interests.

Currently, the perspectives of the government, businesses, and the public remain within the framework of trade under the existing free trade and multilateral system, seemingly seeking solutions and alternatives within that paradigm and pursuing policies accordingly. However, if the fundamental framework itself changes, the long-term ripple effects are bound to occur in various contexts, and these changes are likely to continue. Therefore, we must make addressing this a long-term task.

Son Yeol: It's a paradigm shift. The existing WTO system has reached its end, and in its place, U.S. managed trade has emerged, leading us toward a new paradigm. What will its future evolution look like?

Lee Jae-min: It's difficult to predict, but fundamentally, the framework we were accustomed to—where all countries negotiate to form groups based on the most-favored-nation (MFN) principle and pursue free trade under unified, binding rules—will disappear.

Ultimately, a system of group-based agreements will be formed through bilateral or multilateral arrangements with reliable countries, countries aligned with U.S. interests, or countries that share the same stance as their own, such as the EU or China, enabling a certain level of stable trade within that framework. This 'stable trade' will not be free trade; it will be a low-intensity, participant-centric system that includes various exceptions like national security exemptions and trade balance provisions (Skip Clause). Furthermore, it is anticipated that open agreements will be developed, allowing for periodic review and modification of this system.

The initial step in this direction is the bilateral agreements currently being pursued by the U.S. I believe the process of building something through cooperation, consultation, and negotiation with South Korea represents the first stride. If this progresses, it is expected to move towards establishing new multilateral agreement systems with a few countries, including South Korea, Japan, and Canada.

Concurrently, dispute resolution procedures as we understand them, such as through panels or international courts, will outwardly remain, but attempting meaningful resolution through them will become difficult. Most disputes will likely be resolved through political coordination, with only technical issues being legally settled, and complex challenges being addressed through political and diplomatic channels.

Conditions for South Korea's Accession to CPTPP and Challenges in Trade Policy

Q5: "Strengthening Identity as a Hub Country through Solidarity with Like-Minded Nations... Must Pursue CPTPP Accession"

Son Yeol: Professor Lee Jae-min views the GATT and WTO systems as completely defunct, with the world transitioning to a new trade order. Some existing analyses suggest that after the trials of Trump's four years, the U.S. may return, as suggested by the term 're-globalization.' What are your views on the future world order?

Choi Byung-il: The East Asia Institute has focused on researching the international order. I believe the question of whether the international order will deviate from the liberal international order we know is distinct from the question of whether globalization is ending. I participated in the WTO's founding negotiations from the late 1980s until 1993, and we decided to establish the WTO during the Uruguay Round, the final round of GATT.

The critical difference between the existing GATT and the WTO lies in the implementation of international agreements. Particularly, when powerful nations fail to implement them properly, the ability of weaker nations to demand implementation through reliable procedures becomes crucial. If powerful nations, such as the U.S. or other strong countries, decide not to comply regardless of panel reports, that is the end of the matter.

The WTO established a quasi-judicial system with panels and a two-tiered appeal system to ensure enforcement. This was a significant achievement of the WTO, but the U.S., which created such a system, is now withdrawing from it. I am cautious about whether the WTO will completely disappear if the U.S. withdraws.

Even if the U.S. withdraws, the other countries remain. During the next four years, under a U.S. led by Trump, with its tariff bombshells and unilateral managed trade, the dynamic will be the U.S. versus the rest of the world. It remains to be seen whether countries that constitute an overwhelming proportion of international trade, such as South Korea, Japan, China, and the EU, can easily negate the existing WTO and MFN principles, even if the WTO's dispute settlement system is not functioning.

In such a scenario, there will be no impetus for new negotiations, and the dispute settlement system that guarantees existing implementation will be weakened. This is because, as evidenced by the U.S. not appointing new Appellate Body members, it has been consistently obstructed since the Obama administration on the grounds that it infringes upon U.S. trade sovereignty.

If the U.S. completely withdraws, China or the EU might cooperate and say, 'Although our ideologies differ, we cannot abandon the LIO. It is difficult to find alternative measures. Let's try to make it work among ourselves.' This requires considerable imagination, but it is due to the extreme confusion in other areas.

Even if it does not reach dispute resolution, the open-ended question is whether there is a reason for them to deny it within the existing system. For example, the US withdrew from the TPP, but the remaining countries created the CPTPP. In this regard, it is difficult to consider the WTO system itself meaningless simply because the US has left, and I would like to pose the question of whether the remaining countries might not leave the WTO framework, which requires further observation.

To offer a different perspective on globalization, since the WTO was established in 1995, there have been no concluded rounds of trade liberalization negotiations. However, commerce, digital trade, and other areas are actively progressing worldwide. Impartial digital trade is occurring between nations, and there are no particular issues with the international movement of people and ideas.

The greater problem, I believe, arises not just from trade issues but at the intersection with security. If the US were to leave the WTO, and China proposed to other countries, "Let's do it among ourselves," it is questionable whether that proposal would actually be accepted. Specifically, could countries like the EU, South Korea, and Australia, which have played significant roles in trade, accept such a proposal? When the US left the TPP, it was maintained only among countries with free political systems, and the UK even joined. Rather, there is a possibility that a bloc of free-world countries could form around the CPTPP. Professor Lee Jae-min seems to hold a different view and focus on a different central point. For the CPTPP to gain momentum, it would need to attract more countries, and it is likely to move in that direction.

Son Yeol: Therefore, there is considerable discussion about South Korea's participation in the CPTPP. While it is a political decision that South Korea must make, please explain the conditions under which South Korea could join the CPTPP.

Choi Byung-il: It has a considerable history. In fact, we should have participated in the accession negotiations during the TPP negotiations prior to the CPTPP, but we missed the opportunity. At the time, the Park Geun-hye administration's stance was that since most major countries were in the TPP, there was no need to pursue the CPTPP, which had overlapping objectives. Furthermore, there were concerns about political burdens due to public backlash experienced during the Lee Myung-bak administration over issues like beef imports. We also considered the fact that China is the only major country with which we have not signed an FTA. This was a matter of choice, but it has already passed. When the TPP was launched, the Park Geun-hye administration suddenly seemed to reconsider, as I recall President Park Geun-hye even gave a speech at CSIS in the US stating that South Korea would be the first country to join the CPTPP. Then, the political situation changed, and it became the time for the Moon Jae-in administration, during which, as you know, relations between South Korea and Japan were very poor.

Japan was, in fact, reveling in its victory of establishing the CPTPP. They adopted an arrogant stance towards South Korea, thinking, "We created the CPTPP, and we are in a position to collect membership fees from other countries joining." At the time, due to the economic dispute between South Korea and Japan, the circumstances were the worst, and during the early period of the Moon Jae-in administration, time was spent in complete suspension of preparations amidst arguments for and against joining the CPTPP.

However, the situation has now changed, and Japan also wishes for a like-minded partner like South Korea to join. In this regard, the external conditions are not unfavorable, but the political trajectory remains uncertain.

I have been researching trade negotiations and trade policy for decades, and I have consistently observed that the issue of openness in South Korea's trade negotiations tends to be overly politicized. Based on my experience, I can say that in retrospect, there have been very few instances where the concerns raised in opposition actually materialized despite the negotiations proceeding. Examples include the screen quota system, imports of U.S. agricultural products, and beef imports (South Korea is currently one of the top three importers of U.S. beef). This has also been proven in cases such as the telecommunications negotiations I was involved in. Conversely, a notable case where imports were avoided due to attempts to circumvent the issue domestically is the financial industry under LAIF (Korea-U.S. Free Trade Agreement).

Therefore, despite the difficulties posed by complex cultural codes, the role of economic actors, and the global market, South Korea has 35 years of experience demonstrating that reform and openness, which enhance competitiveness, have ultimately been beneficial.

Consequently, if politicians are aware of these lessons, they need the wisdom to utilize CPTPP as one of the crucial cards to overcome Trump's tariff hikes. However, whenever this topic arises, many approach it with the logic that it is politically burdensome for a newly inaugurated government. If we follow that logic, then the only reform South Korea has achieved in the 21st century is the KORUS FTA. From this perspective, I believe this issue needs to be viewed differently.

Beyond this, there are many other areas for imagination. The Korea-Japan FTA, concluded outside of U.S. negotiations, is still in effect. There is no reason to act identically to Trump. The second phase of negotiations for the Korea-China FTA has not progressed, and for the Korea-India FTA, while a precursor agreement, the CEPA (Comprehensive Economic Partnership Agreement), was signed when India's economy was weaker, India's capabilities have significantly improved, allowing for an upgrade. Therefore, while we must address issues with the U.S. separately, I believe that by reorganizing and rebuilding the FTAs concluded in the early 21st century as a hub nation, we can create new opportunities.

We will also need to upgrade our ASEAN FTAs. FTAs with Vietnam and Indonesia, among others, are being steadily upgraded. Coincidentally, the countries on which Trump imposed retaliatory tariffs on April 2nd, Liberation Day, include China, Bangladesh, Vietnam, and Colombia – nations where South Korea's manufacturing sector has been attempting to diversify its value chains based on the 'China Plus One' strategy. Ultimately, the final export market for these countries is the U.S., and the U.S. is aware of this, hence the imposition of high tariffs. In this scenario, negotiations are not something we can undertake, and Vietnam and India are thus restricted.

Ultimately, one solution is to solidify free trade among nations excluding the U.S. and these specific countries. Expanding on this idea, there is a concern that Trump's agenda of 'Make America Great Again' or 'America First' could inadvertently divide the global trading system into a world where only bilateral relationships between the U.S. and individual countries exist, and another world where a separate order and rules, beyond U.S. control, govern other nations. However, in that scenario, without U.S. influence...

If that were to happen, while the U.S. previously had the power to lead, redesign, and expand norms within the WTO despite certain dissatisfactions, if the U.S. were to withdraw as it is now, its influence on the international stage, at least in trade, would become significantly diminished. Whether this is part of Trump's calculation is currently unknown.

Measures for Cooperation with the U.S. and Resolution of Non-Tariff Barriers

Q6: Short-Term Response Strategy: Diplomacy with the U.S. "Must build trust by expanding domestic accessibility of U.S. goods and fostering multi-sector cooperation, moving beyond reliance on the Korea-U.S. FTA"

Lee Jae-min: I believe developing a long-term plan is crucial. One positive aspect, I think, is that we have finally shed our lingering attachment to the KORUS FTA and the WTO system. Reflecting on it, I believe it's a significant starting point that we have finally abandoned the idea of resolving issues through them or thinking, 'Since our tariff rate is 0%, even with a few fluctuating issues in our relationship with the U.S., things will proceed smoothly within this framework,' especially from South Korea's perspective.

I believe the shift towards a realistic approach of how to respond moving forward, having shed that attachment, is a crucial starting point. In this context, there are various areas where the U.S. wishes to cooperate or collaborate with South Korea, and indeed, needs to. I believe that actively pursuing bilateral cooperation and collaboration in these areas, thereby accommodating some of the U.S.'s demands and desires—such as ensuring stable exports of our products to the U.S. and reflecting our interests, even if partially, in certain items as before—will be the most important aspect going forward.

Looking at recent discussions, the WTO is no longer mentioned. Occasionally, the KORUS FTA is brought up, but discussions about revising it or how to proceed if revision talks emerge, in my opinion, have significantly lost their meaning.

Rather, the crucial current issue, I believe, is to determine the extent to which South Korea can accept the various demands the U.S. is currently making, identify areas where we can exert leverage over the U.S., and find elements of cooperation and compromise within certain sectors between the two countries.

Son Yeol: Trump is demanding that we lower our tariffs, dismantle barriers, and cease currency manipulation to avoid his tariff hikes. If so, perhaps we could create an environment where we dismantle tariffs and non-tariff barriers as much as possible to purchase more U.S. goods, and approach currency issues with greater transparency. While this is Trump's statement, I wonder if this is a possibility.

Lee Jae-min: That's correct. It's a possibility worth considering. The issue is that many of the so-called non-tariff barriers that the U.S. refers to are often difficult for us to improve. Of course, some are improvable. For example, import regulations and quarantine measures could be approached more proactively with technological advancements. In such situations, we could engage in more domestic persuasion, internal adjustments, and legal reforms, and then proactively review and accommodate some of the U.S.'s demands in a way that addresses non-tariff barriers.

Furthermore, a significant number of issues categorized as non-tariff barriers are actually difficult for us to improve or change, often due to differences in national policies or perspectives, making them hard to rectify or alter in the short term. This includes issues like value-added tax and currency exchange rates.

Nevertheless, within the scope of currency policy, there remains considerable debate as to whether it serves as a trade-distorting tool with manipulative effects or simply as an economic policy. Therefore, these aspects can be considered representative areas where it is difficult or impossible for us to fully accept the non-tariff barriers that the U.S. is discussing.

I believe President Trump's mention of non-tariff barriers and currency issues ultimately focuses on the problem of why U.S. goods are not purchased or sold sufficiently. Whether the cause of sluggish sales is tariff barriers, non-tariff barriers, or an invisible hand, President Trump and his associates appear to be largely unconcerned about the specifics.

Korean cars sell 100,000 units in the U.S., but why don't American cars sell in Seoul? While the accuracy of such statistics is unknown, on April 2nd, President Trump stated that 81% of cars operating in Seoul are Korean-made. I interpret this as a demand to create an environment where U.S. products, whether agricultural or manufactured goods, can be sold more widely in trading partner countries. To meet this demand, we must seek rational and proactive solutions for calculable non-tariff barriers and demonstrate to the U.S. and other countries that we are making such efforts.

Moreover, even if it's not a non-tariff barrier issue, we must create an environment where U.S. products can be sold more widely in the Korean market, and their sales increase to a reasonable level, irrespective of tariff or non-tariff barriers. In the long term, this can serve as a method to adjust trade surpluses, or in the U.S. perspective, trade deficits, and thus it is a significant task moving forward.

Third, we must demonstrate our contribution to alleviating U.S. security concerns and considerations in areas where the U.S. has expectations from South Korea, such as defense industry, shipbuilding, semiconductor supply chains, increased investment in the U.S., biotechnology, and LNG energy cooperation. The U.S.'s trade concerns regarding South Korea are not necessarily due to our faults, but rather because South Korea is highly competitive and U.S. products do not sell well in Seoul. It is necessary to alleviate these concerns and make efforts to mitigate U.S. security concerns through our cooperation.

Overcoming the current situation through these efforts will be beneficial. These issues are difficult to resolve within the framework of the KORUS FTA. While the FTA framework will continue to function, it has limitations in addressing the current situation, thus solutions must be sought outside the FTA framework. While the shock may be unavoidable, the task ahead is to seek a soft landing rather than a hard landing.

Intensifying Competition with China and South Korea's Response Strategy

Q7: China Policy and U.S.-China Competition "U.S. Tariff Hikes Present an Opportunity for China... South Korea Should Aim for Indirect Benefits Through Industrial Advancement"

Son Yeol: Currently, the discussion on China's de-risking is largely overshadowed by the Trump issue. While China expands its market dominance due to South Korea's failure to restructure in areas like petrochemicals and steel plates, the market is facing severe difficulties due to recent intensified low-price competition. Recently, there have been discussions about anti-dumping measures against China. How should our trade policy towards China proceed, considering these points?

Lee Jae-min: If the current trade system is not maintained within the WTO framework and instead fragments into various forms and unfolds outside of established norms, China is likely to gain significant opportunities.

China is inherently a manufacturing powerhouse, and it now possesses considerable technological capabilities. Crucially, China also possesses a significant, albeit not cutting-edge, level of competence in the digital economy. Taken together, this suggests that China will have numerous opportunities for diverse trade activities that deviate somewhat from WTO agreements, the Korea-China FTA based on WTO agreements, and RCEP.

In this context, China's attempts to penetrate the South Korean market through state-owned enterprise support, cross-border e-commerce platforms, or various forms of low-priced goods are likely to become more diverse and widespread than they are now.

If this trend continues, it is anticipated that China, rather than the U.S., will find more opportunities to expand into sovereign debt markets, overseas markets, and economic markets, evading U.S. scrutiny.

The U.S. is defending its domestic market through tariff policies and focusing on revitalizing its manufacturing sector. The containment of China through U.S.-China competition, emphasized during the Biden administration, will continue, but the U.S. is currently compelled to prioritize manufacturing revitalization and domestic political and economic recovery. Therefore, it is unlikely that existing U.S. checks or sanctions against China will be easily maintained going forward.

Geopolitically, U.S.-China competition will persist, but purely from a trade perspective, an environment is being created where China can find more opportunities. Of course, the Chinese economy is also facing difficulties, so a prerequisite is the stable growth of the Chinese economy. If we consider only the trade framework, China's potential appears to be growing.

This implies that China's penetration into South Korea and the influx of Chinese goods into the Korean market will further expand. Products that face difficulties entering the U.S. market will likely have no choice but to target South Korea, and if this leads to various new initiatives, South Korea's vulnerability to Chinese goods entering its market could ultimately increase.

Choi Byung-il: This is a difficult issue. Fundamentally, we must ask ourselves what China represents to us, and simultaneously, how China views South Korea is also important. The issue becomes more complex as trade and security are intertwined.

In my consultations, China appears to perceive South Korea as the weakest link among U.S. allies. Furthermore, public opinion within South Korea is considerably divided on U.S.-China issues, and it is seen as a country with significant swings depending on the administration's direction, which is highly disadvantageous to us. While Trump is pushing aggressively, if we consider whether he can ultimately resolve this, the U.S. also has weaknesses.

The U.S.'s weakness lies in the fact that while factory investment promises have been made to build the manufacturing superpower Trump desires, actual production will take considerable time under the current U.S. system. If there are areas in manufacturing that we, as Professor Lee Jae-min mentioned, can contribute to, we can cooperate in fields that yield benefits without provoking Trump. For instance, we cannot receive China's assistance in shipbuilding or warship construction, nor would we build data centers with Chinese help in the AI field. Moreover, we cannot purchase energy or aircraft from China.

These sectors can present opportunities for us. Therefore, in advanced manufacturing sectors where China has already surpassed us or is narrowing the gap, our business leaders are clearly considering the possibility of gaining opportunities for innovation and reversal that we cannot provide.

During Trump's four years, while strengthening U.S. manufacturing and pressuring China with tariffs, tariffs on Chinese goods have reached nearly 100% effective tariff rates. During Trump's first term, rates were already raised by about 20%, with two additional 10% increases in the second term. Although not yet implemented, the 25% on Venezuelan oil imports, plus an additional 34%, means Trump has already raised rates by 70%. This approaches 100%, making trade practically impossible.

This situation can be an opportunity for us. However, if the approach is framed as, 'Your help is desperately needed to make America great again,' rather than using the term 'alliance,' there will be opportunities for our manufacturing sector. This is ultimately an opportunity to reverse the manufacturing competition with China. To provide these opportunities to our businesses, a mechanism is needed to at least level the playing field, which is industrial policy and labor policy.

These policies should ensure that South Korea receives at least the same political benefits that Chinese companies receive, and ideally, similar levels of support as provided by Japanese or European politicians to their domestic companies. However, if this area is approached through partisan lenses or a pro-China/anti-U.S. framework, South Korea may err by failing to seize opportunities despite their existence.

Conclusion: The Survival of South Korean Manufacturing and the Role of Government

Q8: Policy Implications. "South Korea, caught between U.S. and China's pressure, cannot solely rely on corporate self-reliance; institutional government support is indispensable."

Choi Byung-il: I want to say this: 'The strong do not survive, but those who survive become strong.' In the past, I thought it was mere wordplay, but now I see that we must prove that we are strong by surviving.

Trade has been extremely important for South Korea to reach its current position. What we exported was to import what we lacked. Our transformation from an agricultural nation to a manufacturing nation, and then to an advanced manufacturing nation, was not only due to our ability to produce well but also because we created something from nothing in areas like automobiles, steel, and semiconductors. The reason for this was to import what we lacked, such as crude oil and agricultural products. What underpinned this was the rule-based multilateral system, which is now faltering. Therefore, we are in a more precarious situation than other countries.

South Korea has the highest proportion of manufacturing in its GDP among G7 countries. However, Trump is destabilizing the manufacturing sector, creating a double shock for South Korea. At this juncture, we should not simply view this as negative. Ultimately, we must survive, and the wisdom to survive can be found through consensus. However, even with barriers on paper, we must seize these as opportunities, and I believe businesses will adapt. Yet, for this adaptation to be less difficult and less painful, the role of our politics is crucial.

Son Yeol: So, you are saying that policy support is needed to maintain and enhance competitiveness in the manufacturing sector?

Choi Byung-il: Precisely. At a minimum, we must not be at a disadvantage compared to the support provided by other countries—China, Japan, or Europe—to their own companies.

Q9: Conclusion. "Accurate assessment of the future direction of the trade order and proactive thinking for enhancing competitiveness are necessary."

Son Yeol: To summarize our lengthy discussion today.

First, Trump's tariff hikes are a shocking event that disrupts the existing order. Therefore, short-term responses will involve skillful negotiation with the Trump administration to manage South Korea's trade, particularly export-related negotiations. Long-term, it is necessary to systematically respond by accurately forecasting and understanding the future direction of the international trade order.

Second, a certain degree of de-Americanization seems inevitable within this context. In this regard, South Korea's trade, especially economic diplomacy, must significantly expand its strategic space beyond the existing U.S.-China axis to include Japan, Southeast Asia, India, Australia, and even Europe. Within this framework, the effective utilization of CPTPP, as emphasized by Professor Choi Byung-il, is also important.

Third, given the U.S.'s significant requests for increased imports from South Korea, while some actions may appear unfair from our perspective, we must actively pursue those that are feasible. Although this may serve to appease the U.S., we also need to undertake structural reforms for the competitiveness of the Korean economy and industries.

Finally, as you just mentioned, to sustain South Korea's manufacturing competitiveness, we must survive Trump's tariffs and the intense competition from China while maintaining our edge. This requires political effort. Considering the various support provided by countries like Europe, Japan, and even China, we need to approach this matter more proactively.

Director Choi Byung-il and Director Lee Jae-min, thank you for dedicating your valuable time today and for providing such insightful discussions. We will now conclude this dialogue. Thank you very much.

■ Son Yeol: Director of the East Asia Institute and Professor at Yonsei University Graduate School of International Studies.

■ Lee Jae-min: Dean of Seoul National University Law School.

■ Choi Byung-il, Director of the Trade Strategy Innovation Hub at law firm Taepyeongyang. Professor Emeritus at Ewha Womans University.

■ Responsible and Edited by: Kim Chaerin, EAI Research Assistant

Inquiries: 02 2277 1683 (ext. 208) | crkim@eai.or.kr