[9th EAI Academy] ⑧ Economic Security and Korea in the Trump 2.0 Era

YouTube Link: https://www.youtube.com/watch?v=-OwV0DTvukw

Video Script

Economic Security in the Era of Trump 2.0 and Korea: Introduction

Today, I would like to discuss "Economic Security in the Era of Trump 2.0 and Korea" with you. Looking at the curriculum, it seems to have covered the changes in the world order since the inauguration of the Trump administration, shifts in the high-tech sector, inter-state relations, and particularly Korea-Japan relations. You may already be familiar with the era of Trump 2.0, but there are several issues to consider from an economic security perspective. Some content may overlap with previous lectures, but I will explain it from my own viewpoint. Are you familiar with the term 'economic security'?

What do you understand it to be? You are graduating today; shall we embark on our final journey together on economic security? Trump 2.0, of course, signifies a sequential meaning of administrations, but when considering the Trump administration as Trump 1.0, the Biden administration served as an interlude, creating a break rather than a continuity between administrations.

This is not merely a break in administrations; approximately eight years have passed from the inauguration of the first administration to the inauguration of the second. While significant changes have occurred within the United States over the past eight years, there have been substantial qualitative shifts in the world order, particularly in relations with China, leading to the use of the term Trump 2.0 to refer to this period. Of course, there are not only discontinuities but also significant continuities between the first and second Trump administrations.

Regarding continuity, I will assume you are already familiar with the domestic and international background at the time of the first Trump administration's inauguration and will proceed to examine the changes in the domestic and international environment related to the inauguration of the second Trump administration. Naturally, there are various ways to examine this. We could look at it from the perspective of U.S. domestic politics, international politics, or the bilateral relations between states in international politics, such as between the U.S. and China or other countries. Alternatively, we could examine it from the perspective of order or systems. Through your previous classes, I hope you have developed your own perspectives to grasp, understand, and explain the economic security phenomena following the inauguration of the second Trump administration.

Domestic Political Background of the Trump Administration

I must state that there is no single correct answer here. For the first administration, rather than focusing on its background, it is more pertinent to consider the obstacles that the Trump administration or President Trump himself encountered at the time. Neoconservatives can be described as a political force or group that represents the mainstream of American conservatism. In their strong conservative orientation, they share similarities or common ground with the Trump administration or its ruling faction.

However, there were significant differences between the neoconservative faction and the Trump administration, particularly in foreign policy, which made it difficult for the Trump administration to maintain consistency in its foreign policy. In terms of domestic policy, I have written 'Deep State'; some of you may have heard of it, while others may not have. For those who have heard of it, what do you understand it to be? (Audience: A bit louder) What does it refer to?

It is sometimes used to imply the existence of another power, a 'deep' power, in the background. In a simplified sense, the 'Deep State' can refer to the friction between elected and unelected powers. The Trump administration, while representing a fundamental difference, was an elected power through the election at the time of its inauguration, and under democracy, it can be interpreted as having received legitimacy and authority from the people. However, in reality, the Trump administration perceived significant obstacles from unelected bureaucratic groups in pursuing its policies.

Looking back at that period, as the Trump administration transitioned its electoral promises into policy, bureaucrats, due to various practical limitations, established practices, and other reasons, approached the process with extreme caution, if not outright obstruction. In that sense, the Trump administration experienced considerable policy delays. Of course, this might sound like a very specific situation faced by the Trump administration. However, in political science and social sciences in general, these issues have been discussed extensively over a long period and from various angles. For example, there is the concept of 'political control'.

From another perspective, there is 'bureaucratic rule' or 'bureaucratic dominance.' Who truly governs a nation? Some argue that bureaucrats govern. There are various theoretical underpinnings for this. One argument is that bureaucrats, as an independent group not deeply influenced by specific social factions, can govern a nation fairly, without forming privileged or preferential relationships with particular groups. However, the argument for political control posits that bureaucratic groups have not been directly delegated authority by the people.

The democracy we are discussing is representative democracy. When elected power delegates authority, that authority is also delegated by the people. That authority can be used by bureaucratic groups to a limited extent. Ultimately, control over bureaucrats is most often referred to as 'political control,' meaning control by elected officials. In the United States, these issues surfaced after the inauguration of the Trump administration. Naturally, after the inauguration of the second Trump administration, it was crucial to resolve these issues quickly. Of course, there were various efforts to resolve these problems during the first term. What would be a prime example?

You might be thinking, 'Why does this person keep asking questions and making me uncomfortable?' Yes. What would be an example? If you recall the Trump administration, how old were you eight years ago? It varies, but during the first Trump administration, there was a method of responding quickly and agilely to situations, bypassing various practical constraints or, for instance, circumventing congressional control and checks, by using executive orders. Executive orders were mobilized as a means to cope.

This is also a point for which the Trump administration has sometimes been criticized. There was an aspect of trying to resolve issues in that manner, and for the second Trump administration, that alone was not sufficient. So, how did they attempt to resolve the issues? Firstly, structurally, they were in a much more favorable environment than the first administration. As you can see, the Trump administration is a unified government. This can be contrasted with a divided government. In the U.S., some presidencies face the structural constraint of a divided government, while others begin with the highly advantageous environment of a unified government. In recent times, the phenomenon of divided government has become more pronounced, and the first Trump administration was not entirely free from this. However, with the second administration, following the results of the last presidential election, which was held concurrently with congressional elections, a unified government was established. Although the margin was very small, it was a significantly more favorable environment for the second administration compared to the first.

Another structural aspect is referred to as 'New Republicans.' This is a Republican president, after all.

The level of control over the Republican Party had changed. We also discussed neoconservatives earlier. President Trump was clearly a Republican president, and this was true even at the start of his first term. However, at the beginning of his first term, despite being president, traditional mainstream Republican factions treated him somewhat as an outsider. He was often seen as very unusual, not mainstream. In terms of policy, as mentioned earlier, he did not hesitate to use rapid or even unconventional, aggressive methods like executive orders. In that sense, he was often described as not 'normal' or ordinary. However, after eight years, by the time the second administration was inaugurated, the Trump administration had gained a much stronger grip on the Republican Party compared to the first. One of the reasons for this increased control within the Republican Party is closely related to the rise of this group called 'New Republicans'.

If you look at the high-ranking officials appointed during the second Trump administration, their age group largely represents the 'New' image, and this group, which supports the new Trump, has become much more deeply rooted within the Republican Party than in the past, holding various positions, including Secretary of Defense. Consequently, they are in a more advantageous position in relation to Congress and within the party itself. Based on this, they pursued very rapid and broad policy changes, which culminated in MAGA. In the past, there were expectations and demands for the Trump administration from the lower strata in regions like America's Red States or Rust Belt, and this was often viewed through the lens of its influence in a few politically crucial swing states.

However, by the time the second administration was inaugurated, there was a shift where expectations for the Trump administration were formed more broadly than before. Another point is 'Man No.' As you well know, from the early days of the Trump administration, Elon Musk, as its leader, began a strong drive for reform across the entire bureaucracy, focusing on efficiency. He directly addressed the issue of the 'Deep State,' attempting to resolve it with great force. This increased control over the bureaucracy, despite considerable backlash, resistance, and concern, was a persistent effort.

Therefore, from a domestic perspective, through these changes, the Trump administration has finally achieved 'Trumpification,' the mainstreaming of Trumpism, a term that was also used during the first administration. This can be described as one of the major domestic political or internal changes in the era of Trump 2.0. What about the external environment?

Slowdown in global trade growth and the spread of protectionism

Shall we look at this graph for about 20 seconds? What is this graph talking about? Okay, did you see it? What is it? What is the blue line? It's the growth rate of world trade. What is the red line? It's GDP, you can just think of it as economic growth rate. As you can see, around 2008 was a turning point. Do you remember what happened in 2008? What happened? (Audience: Yes.) Yes. It was the global financial crisis. So, for most of the period before that, although there were some exceptions, for most of the period, the growth rate of world trade always outpaced the world economic growth rate. Therefore, looking at the period from the end of World War II in 1945 to 2008, it is no exaggeration to say that world economic growth was driven by trade. Trade led the way. A representative example is a country like Korea. Korea's economic growth was led by trade and exports. However, with the global financial crisis of 2008 as a turning point, this began to change. Of course, in the year the crisis occurred, trade sharply declined. Even after recovering from the crisis, the situation was different from the past. Looking at the 2020s, it was the period when COVID-19 broke out. And then, trade sharply declined again, the growth rate of trade sharply fell. Why is this happening?

This graph shows the growth rate of world trade (blue line) and the GDP economic growth rate (red line). Until the global financial crisis of 2008, the growth rate of world trade outpaced the world economic growth rate, and from 1945 to 2008, it can be said that world economic growth was driven by trade. In other words, trade led growth.

Korea's economic growth was led by trade, specifically exports. However, this trend began to change with the global financial crisis of 2008. In the year of the crisis, trade sharply declined, and even after the crisis, the trend was different from the past. In the 2020s, during the COVID-19 pandemic, trade growth again sharply declined. What are the causes of this phenomenon?

Ladies and gentlemen, why is this happening? It makes me uncomfortable to keep asking questions. Oh, is that so? Trade, of course, brings various positive effects, which is why we engage in trade. However, from another perspective, in international politics, international trade theory, or international economics, trade can be seen as a product of cooperation between nations. It's a demand that I will engage in free trade, so you should also engage in free trade, and I will liberalize trade, so you should also liberalize trade. Only then will trade increase and expand. It is a product of cooperation. For example, if I demand trade liberalization from my counterpart while practicing protectionism, you know what the consequences will be.

It is difficult for trade to expand continuously, meaning it is a result of cooperation. But what happens to cooperation, which has been going so well, when crises occur and uncertainty increases? Nations and individuals alike will prioritize their own interests and survival. From this perspective, protectionism, rather than free trade, takes precedence, meaning prioritizing oneself. Of course, it is beneficial for me if the other party engages in free trade, but protectionism, which aims to protect my own interests, spreads, along with sentiments like 'America First,' as President Trump would say. Therefore, when crises deepen, as in the 2008 global financial crisis or the 2020 COVID-19 pandemic, the more difficult the situation, the more individuals and nations prioritize themselves. What did you do when you experienced COVID-19?

You took care of yourselves first. Securing your own masks, the thought of needing to survive, and so on. At the individual or national level, these are rational actions. However, as the 'Prisoner's Dilemma' game illustrates, rational choices at the individual actor level do not necessarily lead to rational outcomes for the entire system. This is precisely what these phenomena represent. In the intervening period, an era where trade no longer drives global economic growth, meaning a trend of increasing relative protectionism began. It was in this context that Trumpism emerged in the United States, and Brexit occurred in Europe.

The Trump Administration's Economic Security Strategy

The spread of protectionism signifies a very meaningful and significant change in the structural global economic order. What is economic security strategy? As you all know, having heard about it extensively, this topic has been covered by almost all media outlets for more than three weeks since the end of July. First, the primary goal of the Trump administration was to resolve trade imbalances. How to resolve trade imbalances?

What are the specific methods Trump used to resolve trade imbalances? Tariffs. It is even referred to as a 'tariff war' now. Our country, too, had President Lee Jae-myung visit Washington D.C. and hold a summit with President Trump to reach a final agreement on tariff rates. I will discuss the 15% aspect shortly. Second, the Trump administration's economic security strategy is to build a strong domestic manufacturing base. Of course, the premise is that the United States itself made a wrong choice, leading to the hollowing out of manufacturing. Consequently, the manufacturing or production capacity of the United States has rapidly declined.

This is now acting as a vulnerability for the United States, especially in its relationship with China. Why did this happen? If the world before was, as I mentioned, an era of free trade, how does free trade operate? It is based on comparative advantage. In the past, it referred to comparative advantage in the production process of final goods. Recently, it involves utilizing comparative advantage within value chains, which can sometimes lead to competition. Trade operates based on these principles.

However, in today's era, from the perspective of the Trump administration, trade, production, and investment were conducted based on comparative advantage. What was the result? The United States was responsible for only a small part of the entire value chain of an industry, and the manufacturing portion in the middle, which we call 'midstream,' was outsourced. It was sent outside the United States instead of being kept domestically. A significant portion, or even most of it, went to China. What does the United States retain, the upstream?

Capabilities such as research and development, and design. Think about the Apple iPhone. You all have iPhones, right? Where are they manufactured? Who makes them? This is a typical example of trade within a value chain. Foxconn, a Taiwanese company, manufactures them in China. However, who holds the design, intellectual property rights, and R&D for the product? It's Apple's headquarters in Cupertino, Silicon Valley. Yet, production has been almost entirely outsourced, especially to China. Manufacturing has been hollowed out domestically.

This is for efficiency. However, with China emerging as a strategic competitor, relying on China for manufacturing is a significant vulnerability for the United States. Therefore, it needs to be brought back into the United States, and what is such a policy called? It's called 'reshoring.' A policy to bring it back, into the United States. In fact, Apple has already decided to invest in production within the United States. And this strengthening of U.S. manufacturing is not solely driven by U.S. companies. It includes foreign companies as well, particularly allies and partner countries. By rebuilding manufacturing capabilities strongly within U.S. territory, it will be possible to compete with China from a more advantageous position, and at times, even to confront it. This constitutes the Trump administration's economic security strategy.

Third is innovation. To maintain an advantage over China, especially as a strategic rival, it is crucial to quickly rebuild the ecosystem of technological innovation. It is essential not to fall behind in innovation. You are likely aware that various policy initiatives are being pursued not only in the semiconductor sector but also in AI, quantum computing, and other fields. Looking at the fourth point, 'Reduction of Sino-U.S. Interdependence,' what does this entail?

The Sino-U.S. relationship is unique in the context of two countries engaged in strategic competition. Historically, countries engaged in strategic or hegemonic competition have generally not been interdependent. However, the U.S. and China have entered into strategic competition with a high level of interdependence. This is a significant difference from past precedents. Therefore, the U.S. and China have become existential threats to each other. An existential threat is something that can have a fatal impact on my nation's survival, meaning the very existence of the other party can affect my national security. High interdependence is one of the key reasons for this.

Does this make sense? How can high interdependence sometimes manifest as economic aggression or, further, a national security threat? Have you heard the term 'weaponization of interdependence' in previous classes? This is precisely why. When two parties are highly interdependent, it can sometimes be weaponized as a means to pressure the other. While there are more detailed discussions on this, I will keep it brief here. From this perspective, the U.S. currently possesses various means to check and pressure China, and conversely, China, unlike eight years ago, has also acquired means to pressure the U.S., which I will elaborate on later. This is possible due to the high level of interdependence.

If the relationship were one of complete disconnection, the concept of weaponized interdependence might not have been established. In that sense, posing an existential threat is a significant burden. While it may be convenient for me to pressure the other country, being pressured by the other country is highly uncomfortable. To preemptively or preventively defend against such situations, a reduction in interdependence may be unavoidable. It is not, however, decoupling. To be more precise, a reduction in interdependence means a relative reduction. A relative reduction.

What is different about the first Trump administration is that this relative reduction has been progressing to some extent between the U.S. and China over the past eight years. For example, in terms of trade, while the absolute volume has not drastically decreased, there have been significant changes in relative proportions. In that sense, the U.S. and China have relatively successfully reduced direct interdependence, meaning the extent to which the U.S. depends on China and China depends on the U.S. Therefore, it can be said that the necessary readiness, the defensive posture, for entering into full-fledged strategic competition has been established. However, the first Trump administration observed that while the U.S. and China had been doing this for the past eight years, new problems had arisen.

What were these problems? As you can see, the U.S. has imposed various pressures on China, and a representative example is export controls, particularly on NVIDIA AI chips, which are frequently reported in the media. The U.S. has actively employed export controls not only on AI but also on various other products and services, but China has found ways to circumvent them. Conversely, the U.S. has consistently tried to block China's access to the U.S. market, but China has found ways to access it through alternative channels, continuing to export. How? Through third countries. These third countries sometimes serve as conduits for circumventing the import of key products like U.S. AI chips, and at other times, through countries like Vietnam, Chinese companies produce

and export them to the U.S. through these circumvention routes. So, what I am trying to say is that over the past eight years, the U.S. and China have been relatively successful in reducing direct interdependence. However, indirect connections still remain. The Trump administration views this as undesirable. Although there are buffer zones like third countries, it is not a structural solution in terms of reducing dependence on China, and efforts are being made to prevent these issues. The case of Vietnam, mentioned earlier, is a prime example. A tariff of as much as 40% has been imposed on products circumventing exports through Vietnam. These need to be blocked. These are among the new measures of the Trump administration, particularly for continuing strategic competition or engaging from an advantageous position. I will now discuss negotiation strategies or approaches. Professor, is there a break in between? What do you think?

Simultaneous Bilateral Negotiation Strategy

No break >> No break. You are amazing. Two hours straight. >> What did you say? Professor >> Professor, what kind of discretion did you usually exercise? >> Yes. Is it the discretion not to do it? Yes. >> I will exercise some real-time discretion. Yes, that's what's happening. Simultaneous bilateralism. What does this mean? To put it simply, the first Trump administration prioritized countering China in all its negotiations. Of course, the Trump administration approaches any相手, even allies or partners, with a transactional approach.

It is well-known that they adopt a 'transactional approach.' However, the biggest target of the first Trump administration was China. This is for various reasons. As mentioned, China is a strategic competitor, and as you recall from the previous slide, what was the primary goal of the Trump administration? Goal number one was to resolve or mitigate trade imbalances. China was the largest source of the U.S. trade deficit during the first Trump administration, exceeding $350 billion, sometimes reaching $380 or $390 billion. In that regard, it was naturally the first and highest priority target. From the perspective of selectivity and focus, targeting China was incomparable to other countries. However, the second Trump administration, which has now been launched, is markedly different from the first. To use a somewhat rough expression,

Who did they hit first? As it's called 'bashing' in English, who did they target first? Countries like Canada and Mexico. Among various reasons, one is certainly the Trump administration's inherent characteristic of adopting a transactional approach even towards allies and partners. Second, as I mentioned earlier, it was to block circumvention exports through Mexico and Canada. And of course, regarding relations with Canada and Mexico, the Trump administration's stance to resolve unfair trade relations also existed. Do you understand what I mean? And simultaneous bilateralism means that the Trump administration shows a very clear and strong preference in negotiations.

Who did they target first? As expressed in English as 'bashing,' who did they target first? Countries like Canada and Mexico. There are various reasons, but first, it reflects the Trump administration's characteristic of adopting a transactional approach even towards allies and partners. Second, as mentioned earlier, it reflects the intention to block circumvention exports through Mexico and Canada. Of course, regarding relations with Canada and Mexico, the Trump administration also held the position of resolving unfair trade relations. Do you understand what I mean? And simultaneous bilateralism means that the Trump administration shows a very clear and strong preference in negotiations.

That is bilateralism. It means doing it one-on-one. This is a departure from multilateralism, which most countries in the world strived for until the early to mid-2000s. What was multilateralism? It was trade negotiations through the WTO. However, with the advent of the Trump administration, the WTO was weakened, even deliberately undermined by the Trump administration. And bilateralism was pursued. It means doing it one-on-one. Why pursue one-on-one negotiations?

Why does the Trump administration favor one-on-one negotiations? Because it allows for the exercise of asymmetric bargaining power. To put it simply, in trade negotiations under the WTO system, the U.S. is just one of many participants. This is related to the WTO's unique decision-making process, which aims for consensus.

In any case, the Trump administration showed a strong preference for bilateralism, i.e., one-on-one negotiation, and pursued a strategy of extracting concessions or compromises from the other party. And this has been quite successful in some aspects. The Biden administration can also be understood in terms of continuity regarding bilateralism. However, what does 'simultaneous' mean? As you can see,

It means conducting bilateral negotiations with multiple countries simultaneously. As mentioned earlier, this includes Canada, Mexico, Japan, South Korea, Vietnam, and others. This is an area that even the Trump administration is attempting for the first time. Therefore, when this negotiation approach began, some experts predicted that the Trump administration might not be able to extract unilateral concessions as before, using its asymmetric bargaining power. What is the challenge?

If the negotiating partners cooperate well and present a united front against the U.S., given that they are facing similar demands, it was cautiously predicted that countries like the EU, South Korea, Japan, Canada, and Mexico might be able to hold their ground without making significant concessions to the U.S. However, this did not happen in the end. Trump's bilateral approach was still effective. In other words, cooperation is that difficult.

Despite the potential for certain achievements through cooperation, they failed to cooperate, creating a situation where it felt like one had to go first. What then happens? Someone made an agreement with the Trump administration first. What happens after an agreement is made? It sets a benchmark. Once that benchmark is set, with some adjustments, the negotiation goal for other countries becomes what? Simply not to fare worse than that country. There was a similar sentiment in Korea. What was our benchmark or reference point? It was simply not to do worse than Japan. That's how the 15% was achieved. This is Trump's negotiation tactic. As a result, significant concessions were extracted from major world powers, whose combined economic size is larger than that of the U.S.

Despite the imposition of high tariffs of 15%, the impression given to the other countries was, 'We avoided the worst.' This is happening simultaneously to such an extent that President Trump himself doesn't know how many negotiations he is conducting; currently, it's 90, according to Peter Navarro's calculation, it's 30. President Trump himself sometimes says 70, up to 200.

This led to significant concessions from countries with large economies. Even though the Trump administration imposed a high tariff of 15%, what impression did the other countries gain? They felt 'the worst was avoided.' This is happening so concurrently that President Trump himself does not know how many negotiations he is conducting; currently, it is said to be 90. According to Peter Navarro's calculation method, 30 negotiations are underway. President Trump has sometimes mentioned 70, and up to 200 negotiations.

He doesn't know how many. In any case, he conducts many. Simultaneously. This is one of the characteristics of the Trump administration. However, by concluding negotiations with certain countries early, they used those agreements as benchmarks to pressure other countries. Do you understand? That's the strategy they employed, and as a result, up to this point, they haven't discriminated between allies or partners, or even China. Of course, the focus of negotiations is increasingly shifting towards China.

Imposition of Tariffs and Their Background

That might be the calculation of the Trump administration, because they also start negotiations with China based on a reference point. One of the reasons why these things are possible is that although many issues are currently considered security-related, tariffs, in particular, are a tool that the Trump administration is wielding with immense power. Let's take a look at this. The graph on the left shows approximately 20 survey results.

Each bar represents the results of a survey. Within about a month and a half after the Trump administration took office, there were about 20 surveys. Among the questions asked about the Trump administration, there would have been questions about tariffs. When asked about tariffs, 'Do you support tariffs?', the support rates naturally vary depending on the survey. However, some surveys show high percentages of support for tariffs, even exceeding 50%. This goes against our common sense and intuition.

Why is it counterintuitive? When tariffs are imposed, who ultimately bears the burden of high tariffs? It is the U.S., meaning the companies and consumers in the U.S. who use imported goods. Since most of the people surveyed are likely consumers, I expected them to oppose the imposition of high tariffs. However, as you know from media communication classes, there is something called the 'framing effect.' When asked about tariffs while mentioning China, the support rate dramatically increases.

When asked about tariffs while mentioning China, the response is affirmative. Therefore, even if I might suffer some losses due to inflation, I am willing to accept it because it is supposedly good for the country. Another method is the way the Trump administration consistently frames it. Looking at the right side, we can see when support rises, meaning when approval for imposing tariffs increases. When tariffs are mentioned in conjunction with job creation, support rates rise. Conversely, when inflation or price increases are mentioned, support falls.

Therefore, the Trump administration continuously justifies its actions by talking about job creation, mentioning China, and unfair trade practices. In particular, it has entered a phase of securing these aspects in its relationship with China and other countries. Now, let's take a 5-minute break. We will resume after a 5-minute break.

Historical Context of U.S. Tariff Rate Changes

This illustrates how U.S. tariff rates have changed over the past 220-plus years. As you can see, in the early to mid-1800s, U.S. tariff rates were very high for various reasons. This is the average tariff rate, which approached 60%. It then showed a downward trend, rising again in the 1870s. It generally trended downward, but rose again in the 1930s. There are several reasons for this. The 1930s were the period of the Great Depression.

Why did it increase during the Great Depression? As I mentioned earlier, when risks and uncertainties increase, people tend to protect their own interests first. The U.S. is no exception. However, with the end of World War II, tariff rates decreased, and as of 2023, the average U.S. tariff rate has fallen to 2.5%. This signifies a considerable level of free trade. This is the history of the U.S. from a tariff perspective. Thus, through this process, despite ups and downs, it eventually decreased to 2.5% in 2023. Even that 2.5% is a somewhat increased tariff rate from 2023. However, the following slide will show what happened after 2023.

The average tariff rate is now approaching 25%. Ladies and gentlemen, to which period have we returned? We have returned to the era of the Great Depression. We have gone back 100 years. The clock of history, as seen through tariffs, has turned back. Why is this happening? Humanity has made efforts to lower tariffs. While there are differences between countries, the pattern in the U.S. is not significantly different. Tariffs have been lowered, but

after more than 100 years of effort to lower them, the world has changed in just one or two years. The U.S. has changed. Why? This is a slightly different indicator. It is expressed as tariff revenue. What is tariff revenue, in reverse? It is what occurs when the U.S. imposes tariffs. In other words,

it ultimately comes down to who pays the most tariffs. By country, China is high. China bears a very heavy burden. Japan and South Korea follow. These are countries with rates higher than the world average. Looking at this alone, China does bear the largest tariff burden. However, it is difficult to say that South Korea and Japan, who are also U.S. allies and partners, are qualitatively different. The result is the record-breaking increase in tariff rates I mentioned earlier.

The Multi-layered Structure and Negotiation Strategies of Tariff Wars

Of course, the final agreement with China remains to be seen. However, as you can see, this has happened in just a few months. So, how should this be explained? There are three main points. First, tariffs are used as a tool to alleviate trade imbalances. And these tariffs have three layers. One is the basic tariff, and another is the reciprocal tariff. President Trump himself talks about 'reciprocal' a lot.

This means that the other party also advocates reciprocity and grants preferential treatment to each other, but President Trump's perception was different. He believed that the U.S. had granted preferential treatment to other countries, but those countries had not granted reciprocal preferential treatment. This was a measure to 'level the playing field,' and the logic was that the U.S. should impose reciprocal tariffs. Accordingly, starting with steel and aluminum, tariffs on items such as semiconductors were considered, and the Trump administration pledged to impose tariffs on semiconductors as well. However, there were exceptions.

I will mention those exceptions shortly. Secondly, until now, the U.S. economic security strategy has been developed around traditional trade barriers such as tariffs, which have been called a tariff war. However, recently, the U.S. side has stated that existing agreements, including those with South Korea, may not be final, and that all agreements with the U.S. are always subject to change.

This means they can be 'rolled,' implying continuous change and development. If the first issue was negotiation using tariffs, the next issue is likely to be non-tariff barriers. In particular, digital trade barriers, which may have a direct relationship with South Korea concerning trade in advanced products, will become a major point of contention.

The U.S. Trade Representative (USTR) pointed out that South Korea's online platform law could become a digital trade barrier. This is because regulations on large platform companies could disadvantage U.S. companies. These digital trade barriers are likely to become a major agenda item in trade negotiations going forward. Protecting the interests of U.S. companies in areas where the U.S. has overwhelming competitiveness will be a key objective of the Trump administration.

Indeed, the Trump administration has shown a stance that it will not tolerate actions that infringe upon the interests of U.S. tech companies. As a second strategy, it has pledged to impose tariffs of up to 100% on semiconductor items. However, exceptions may apply to countries that invest in the U.S. and produce semiconductors.

For countries like Taiwan and South Korea that invest in the U.S., companies such as TSMC, Samsung Electronics, and SK Hynix may be eligible for exceptions. However, the specific application of exceptions is likely to be determined after monitoring the implementation of investments and actual production. Mere investment promises will not lead to tariff exceptions.

In this context, the Trump administration's negotiation strategy is to link trade and investment. By linking investment with policies to mitigate trade imbalances, it aims to build a strong manufacturing base that includes not only U.S. companies but also foreign companies. This requires investment in the U.S. by foreign governments and companies. This is the second key element of the negotiation. Negotiations with South Korea also took place in this context.

Economic Security and Strategic Alignment

South Korea agreed to a 15% tariff to alleviate trade imbalances and pledged $350 billion in investments in the U.S. These two are policy considerations that go hand in hand. The third is economic security, or 'strategic alignment.' This refers to alignment with the U.S.'s strategy toward China or its global strategy, even if not explicitly stated.

Escalation of the U.S.-China Trade War and Strategic Competition

The Trump administration is employing a strategy to mitigate trade imbalances, increase U.S. investment, and foster alignment with U.S. global strategy. The U.S.-China trade war has been ongoing since Trump's first term, and pressure on China has intensified in his second term. Our attention is now inevitably shifting to China, and this chart concisely illustrates the situation to date. Beyond tariff rates, the following graph provides more detailed information.

As the graph shows, until just a few months ago, the U.S. government imposed tariffs on about 66% of Chinese goods. China imposed tariffs on less than 60%, or about 50% of its items. This refers to the proportion of items subject to tariffs, not the tariff rates themselves. In other words, both the U.S. and China are imposing tariffs on a significant percentage of items.

This is an enormous scale, and the tariff rates are also very high. The figures for 2021, 2022, and 2023 appear lower due to a visual illusion; the actual tariff rates are very high. Furthermore, the fact that tariffs are imposed on such a large number of items is noteworthy. Tariffs are effectively imposed on nearly 100% of items, which can be described as an intense tariff war. This fierce tariff war between the U.S. and China is inseparable from strategic competition. Fundamentally, it can be seen as triggered by the structural changes of China's relative rise and the U.S.'s relative decline.

China is not only increasing its national strength but also expanding its influence in shaping the world order. Moreover, the unconventional policies of the Trump administration have raised doubts about American leadership. It has prompted the question, 'Is this the America we know?' and has led to a decline in U.S. credibility. The Trump administration has been seen pressuring allies, and in this situation, China has reaped indirect benefits.

However, China has also made mistakes and repeated errors, alienating many countries, which has in turn benefited the U.S. We are currently in an era of economic security and hyper-uncertainty. The important factor is not who does better, but who does less poorly, and even when choosing partners for cooperation, the situation has changed such that we must consider countries that 'do less poorly,' unlike in the past. This can be seen as a 'normalization of the abnormal.'

Complex Factors in U.S. Trade Policy

According to a recent Brookings report, when examining tariffs individually, several factors are at play. The most fundamental factor is fairness; the Trump administration's actions led to the imposition of tariffs on many countries.

Additionally, special trade policies were needed for countries bordering the U.S., such as Canada and Mexico, considering border security. Geopolitical considerations were also important factors. For example, the imposition of tariffs on steel and aluminum was a consideration for key items directly related to military security and the defense industry.

Considering these three factors—fairness, border security, and geopolitical considerations—China is almost the only country that falls under all categories. Other countries may fall under only some or two categories, but China is complexly linked to all of them. Therefore, while the Trump administration's trade policy appears to be unfolding simultaneously against multiple countries, it is ultimately aimed at China and is a result of geopolitical and economic security considerations.

China's Changing Response and Negotiation Strategy

From China's perspective, it was inadequately prepared during the Trump administration's first term. This was not simply due to laziness, but rather because it was relatively underdeveloped compared to the U.S.'s capabilities at the time. Consequently, the 'Phase One deal' was reached in January 2020.

The Trump administration terminated the agreement, citing China's failure to properly implement it, but other explanations also exist. Officially, the reason cited was lack of implementation. The Phase One agreement contained aspects that were quite humiliating from China's perspective. Presenting 'numerical targets' is the last resort in trade negotiations, and at that time, China had to agree to a numerical target of importing $250 billion worth of American products.

Previous trade negotiations were primarily about how to achieve balance, discussing methods such as exchange rate adjustments or imposing tariffs. However, the negotiations between the Trump administration's first term and China were essentially a demand to import as promised, without specifying how this would be achieved. China agreed to this, but ultimately could not fulfill the promise, and the negotiations never moved to the implementation phase. More than five years have passed since then.

China is now back at the negotiating table, with reports indicating that Chinese negotiators will soon visit the United States. China will be far better prepared than it was at that time. During Trump's first administration, China retaliated against U.S. tariffs, but sustained competition proved difficult. However, in early 2025, China demonstrated a retaliatory stance once again.

Key U.S. exports in these sectors include LNG, crude oil, and agricultural products. In response, China imposed retaliatory tariffs. When the Trump administration increased tariff rates, China also raised its tariff rates in April 2025, a stronger response than during the first round. A key change in the second round, unlike the first, was China's export controls, which became a major issue at the London talks. When the U.S. imposed export controls on China,

China responded with its own export controls. If the U.S. can pressure China with AI semiconductors, etc., China, in turn, possesses rare earths that can threaten the production of advanced U.S. products, including semiconductors. Therefore, China imposed control measures, not an outright ban, on rare earths. These controls include measures that could lead to an immediate ban and have at times resulted in temporary bans. Whereas China previously responded with tariffs, it is now building a system to respond to export controls with export controls and to tariffs with tariffs. This is a change from the first administration. However, China's retaliation is not an end in itself; within China, there is discussion of '先他在談' (xiān tā zài tán), meaning prioritizing negotiation.

This signifies not ruling out the possibility of negotiation. While responding, the response is not aimed at escalation towards a complete breakdown. If an opportunity for negotiation arises, China will engage, but it will not passively accept attacks. This represents a change in China's approach. China has six specific countermeasures prepared and will respond accordingly. Beyond simply finding means for retaliation, over the past eight years, China has been strengthening its domestic institutions and legal frameworks to enable institutional countermeasures against the U.S., including export controls, enhanced investment screening, and economic coercion.

The U.S. Dilemma: China's Transformation and Response

This is how China has spent the last eight years. Many experts have focused on China's internal preparations, believing that these efforts could lead to a different response from China during the Trump administration. Indeed, initial signs of this are emerging. These specific changes have led to a dilemma for the United States because China has changed. I will now elaborate on this dilemma.

The first dilemma concerns the existential threat between the U.S. and China, characterized by a reduction in their mutual dependence. We can observe a decrease in China's trade dependence on the U.S. among its trading partners. The graph shows a further decline in China's trade dependence on the U.S. starting around 2018, the onset of the first trade war. Currently, China's trade dependence on the U.S. is not significantly different from its dependence on ASEAN or the EU. Previously, the U.S. held a substantial share of China's trade, with a significant gap compared to other countries or regions.

This is the result of reducing dependence. Conversely, this means that the U.S. is increasingly losing leverage to pressure China. Initially, tariffs were imposed, but the scope for applying tariffs is diminishing. The impact is less severe than before. While the absolute value remains high, the proportion is less impactful than in the past. This can be considered an indirect effect of the tariff war and trade war initiated during the first administration. It is precisely because of this that China has transformed, making the impact less severe.

The second dilemma relates to the import penetration of key commodities. While some sectors show import penetration rates in the low teens, they remain at a high level. Some items exhibit import dependence exceeding 90%. Secondly, aluminum is crucial for the defense and military industries, and the U.S. is entirely dependent on foreign sources for it. The Trump administration aims to increase domestic production by any means necessary, which explains the initial imposition of tariffs on steel and aluminum.

This is a type of rare earth. Regardless of tariffs or other measures, it is difficult to substitute. It is produced in large quantities in China. This presents a dilemma for the U.S. As mentioned earlier, China retaliated against the U.S. with export controls on rare earths. At present, the U.S. has few alternatives. Consequently, the U.S. engaged in difficult negotiations in London in April. One of the provisional terms of the London agreement included the U.S. demand for the relaxation of China's export controls on rare earths.

Without rare earths, the production of advanced electronic products becomes impossible. This was a request for relaxation, and I describe it as humiliating because although China agreed at the time, there was a condition attached: a provisional relaxation of export controls. How many countries can make such a demand of the U.S.? In other words, China has reached a point where it can tell the U.S. that it will relax controls if things go well, but will tighten them again if they do not.

The reason rare earths serve as such leverage for China is not merely due to dependence, but because the U.S. relies on China for them where they cannot be obtained elsewhere. This is America's dilemma. Of course, the U.S. is making various efforts to mitigate this threat, including attempts to mine rare earths domestically and cooperating with countries like Australia for overseas mining. However, the issue is not solely the absolute volume of mineable ore, but the processing. After mining, rare earths require purification, a process that generates significant environmental pollution.

Most developed countries find it difficult to undertake this process currently. This may be precisely why production has centered in China. In the past, from the 1980s onwards, China did not anticipate the strategic importance these resources would gain. At that time, China was not a strategic competitor to the U.S., which may have led to a sense of complacency, and China itself might not have realized their significance.

The Dilemma of Circumventing Exports and Investment-Trade Linkages

Regardless, these items have now become strategically vital. China, as it is today, will not cease domestic production, even if it causes environmental pollution. This is America's dilemma. Another dilemma, which I will summarize and present again, relates to the content previously discussed. The graph on the left shows countries like Mexico and Vietnam, with the red line representing the average.

These are countries receiving investment from China. Countries receiving substantial investment from China are above the red line. The right side shows countries with high growth rates in investment received from China, i.e., above average investment growth rates. These countries also exhibit a characteristic: as seen on the right, they have high export growth rates to the U.S. In other words, they receive investment from China, produce goods, and then export them to the U.S. Here, 'investment' refers to investment from Chinese companies, meaning Chinese companies establishing operations and producing within these countries, similar to how Samsung Electronics from South Korea produces in China.

Chinese companies are doing so, with the final market being the U.S. As mentioned earlier, while indirect mutual dependence has decreased through third countries, this method of circumvention remains active. This is America's dilemma. The U.S.'s firm policies towards countries like Vietnam and Mexico are related to these factors. While there are individual issues within those countries, considerations regarding U.S.-China strategic competition are also at play.

This can be termed the 'Investment-Trade Nexus.' The U.S. is continuously concerned about this, and there is an ongoing debate within the U.S. The fundamental stance of the Trump administration is that this must be prevented, and indeed, measures have been taken against Vietnam and Mexico. However, others, while agreeing on the necessity of such policies, question whether they can be implemented effectively and in a timely manner.

These issues are always discovered retrospectively. There is an English expression, 'whack-a-mole.' Won't this become like the whack-a-mole game? If not caught in time, the moles pop up again and again. This concern about the game of whack-a-mole is one of America's dilemmas in reality. For this to be effective, analogous to the whack-a-mole game, the mole must be caught before it appears, or at the moment it begins to emerge. Catching it after it has already appeared is too late.

AI Competition and Dilemmas in Joint Scientific and Technological Research

Let alone appearing and disappearing, even hitting it while it's out is too late. The question is whether it can be addressed as it emerges. This is America's dilemma and its strategy. Another dilemma is AI competition. You may have seen much of this in the advanced technology sessions. Joint research in AI between the U.S. and China was extensive until 2020 or 2021. However, starting around 2021-2022, joint research began to stagnate and decline. Within the U.S., there is a debate on whether, given that China ultimately benefited from this open innovation ecosystem, the U.S. should increasingly move towards a more closed approach. The direct trigger for this debate was China's

deep learning breakthrough. Deep learning was built upon Llama, an open-source model from the U.S. When the U.S. developed and shared open-source LLMs, China produced innovative products and became an AI competitor. AI is the current and future frontier, and it will have ripple effects. Isn't this dangerous? Therefore, there is a discussion on whether AI research and development should become increasingly closed. One of the initial indicators for this discussion is the decrease in joint research between the U.S. and China. However, no one can be certain about this. This is one of America's dilemmas.

This is a related point. The left side shows the international joint research network in science and technology among approximately 12 countries. The U.S. forms the largest node, connected to all 12 countries. China, while not as large as the U.S., is the second most connected in the international joint research network in terms of node size.

This data is from 2021 and is sourced from Nature. As the world changes, even international relations scholars like myself read journals like Nature and Science. This international joint research network indicates the arrival of the U.S.-China era even in basic science.

There are even numerous reports suggesting that China has surpassed the U.S. in certain areas. The right side shows that, similar to AI research, joint research between the U.S. and China began to decline after 2020. A phenomenon of increasing separation between the U.S. and China is emerging in the scientific and technological joint research network. One of the major U.S. strategies is the concern that by competing based on open source, China ultimately reaps the benefits.

Rare Earth Dilemma and China Dependence

I have discussed the U.S. rare earth dilemma. If you recall the news about the White House meeting between President Trump and President Zelensky, there is a lesson to be learned: we should not be in such a position. When President Trump sought to mediate the war between Russia and Ukraine and secure a role in peace negotiations, what did he demand of Ukraine?

A characteristic of the Trump administration was its transactional approach. At that time, Vice President Pence, seated next to President Trump, said to President Zelensky, 'Why aren't you wearing a suit? Show some respect. Do you have any intentions?' Secondly, he asked, 'Did you say thank you?' What did he mean by 'thank you'? He meant to show gratitude, in some form of compensation. It is difficult for a war-torn Ukraine to offer economic compensation. So, what did the Trump administration ask for instead? It asked for the rare earths reportedly found in Ukraine. This symbolically illustrates how significant the U.S. dependence on China for rare earths is. The era of economic security is becoming our reality.

It is difficult for a war-torn Ukraine to offer economic compensation. The Trump administration, instead, asked for what? For the rare earths reportedly buried in Ukraine. This symbolically demonstrates how important the U.S. dependence on China for rare earths is. The era of economic security is becoming our reality.

Demand for Constant Negotiation and Strategic Alignment

The global economic order will largely proceed in this direction. Negotiations, agreements, and deals will not be conclusive but will become ongoing. While successful negotiations with the US military may occur at certain points, and current ROK-US negotiations are being positively evaluated, we cannot be complacent as these may not be final.

If negotiations were successful in the first phase, preparations must be made for the second phase. This is one aspect of the current Trump 2.0 era and the changing world order, and it is what we must do. In particular, the demand for alignment with US-led alliances and partners, with China in mind, may intensify. While 'alignment' is understandable to some extent, its precise meaning may not be clear.

The Trump administration's perception is that since the end of World War II, the US has designed, operated, and borne the costs of the world order, but countries that benefited from this order have not paid their fair share. In other words, the accounts have not been settled properly. From the US perspective, to put it crudely, they felt that others were constantly running up tabs. The Trump administration's perception was that settlement was due, but the payment of these debts was continually deferred.

Adjustments are needed for such matters. Ultimately, how will these be adjusted? The US has unilaterally borne these costs, and it has come to believe it can do so, while allies and partner countries have also taken this for granted. They have now realized that these were ultimately costs to be calculated and settled. The time for settlement has been repeatedly postponed. It appears that now is the time for settlement. There is strategic alignment in this sense. Furthermore, the intention is to make the China factor more distinct.

Parallel Pursuit of Economic Security and Commercial Interests

Export controls are part of the strategy toward China. While demanding these, the Trump administration and US companies are not abandoning the pursuit of commercial interests with China. This is why it is economic security. On one hand, there is control; on the other, there must be commercial benefit. The recent easing of export controls on some NVIDIA AI chips is an example.

The easing of export controls on low-specification AI was because they must be sold to China. NVIDIA needs to be helped to pursue commercial interests and generate profits so that it can maintain its leadership in AI. If NVIDIA loses a huge market like China, it cannot continue without generating revenue by selling there. The Trump administration is not blocking everything unconditionally.

President Trump's initial reactions immediately after the news about deep [learning] was announced were twofold. First, this is a wake-up call for the US AI industry, necessitating the rebuilding of the AI industrial ecosystem. Second, responses toward China must be 'laser-focused,' as the English expression goes, meaning precise. The need was for accurate and sophisticated responses, not indiscriminate ones.

It is not about blocking all AI. It is necessary to block areas that are essential for the US to maintain its technological superiority, and indeed, technological dominance. Areas that help in pursuing commercial interests can be eased. Sequentially. The recent relaxation of export controls is an example of this. We will continue to see news about the strengthening and easing of export controls. Rather than interpreting this as the Trump administration wavering, this is the correct interpretation.

Lee Seung-joo, Director of the EAI Center for Trade, Technology, and Transformation, and Professor of Political Science and International Relations at Chung-Ang University.