[Issue Briefing] Recommendations for Korea's New Trade Policy Over the Next Five Years: Navigating the Waves of the Trump Administration's Aggressive Unilateralism

Editor's Note

To diagnose the changing international landscape and key issues in 2017 and to suggest directions for desirable Korean foreign policy, EAI convened a roundtable discussion with experts from various fields. This paper was written by the author based on the discussions held at the roundtable.

The new US administration under President Trump has strongly expressed its intention to reshape the existing trade and commerce order since its inception. During his presidential campaign, Trump advocated for 'America First,' emphasizing the need for a comprehensive revision of trade policy to directly benefit the American people. As if to prove this, President Trump immediately took aggressive measures upon taking office, signaling a comprehensive review of the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP), and has openly expressed a stance of pressure against China. The emergence of the new US administration and the rapid shift in trade policy herald significant changes in the global free trade order, necessitating a wise policy response from our government. Reactive policies to US policy changes will not be the right prescription. Therefore, it is necessary to reaffirm the principles of the liberal trade order and devise proactive measures to upgrade the international liberal economic order to meet the changing times by establishing an effective and proactive economic diplomacy framework.

From the Main Text

"The Trump administration is pursuing bilateral negotiations and unilateral retaliation that maximize America's asymmetrical power relations, rather than a liberal approach based on multilateral institutions, norms, and rules. It has renegotiated the North American Free Trade Agreement (NAFTA) and withdrawn from the Trans-Pacific Partnership (TPP), openly designating China as the primary target for retaliation, and is signaling pressure to correct trade imbalances to countries like Japan and South Korea, which record substantial trade surpluses with the US, by threatening to label them currency manipulators. This can be described as an aggressive unilateralism trade policy."

"The perception that China's trade policy is hostile and threatening is well-illustrated by the goals of trade policy outlined by Peter Navarro, head of the newly established National Trade Commission under the White House: (1) rebalancing trade (i.e., resolving trade imbalances), (2) creating quality jobs through the revitalization of manufacturing, and (3) restoring America's comprehensive national power... If the Chinese market stagnates due to US-China trade conflicts over the next two years, the negative impact on the Korean economy will be clear. Furthermore, if retaliatory measures are fully implemented against Chinese products that are assembled and processed using intermediate goods exported by Korea and then exported to the US market, not only China but also Korea will be hit directly."

"The issue of currency manipulation could be more serious. The US Treasury Department uses three criteria to determine whether a country is manipulating its currency: a significant trade surplus with the US (exceeding $20 billion), a substantial current account surplus (exceeding 3% of GDP), and unilateral intervention in the foreign exchange market (net purchases exceeding 2% of GDP). Korea meets the first two conditions, and if China is designated as a currency manipulator, Korea will also find it difficult to avoid this fate."

"Another significant issue that will have a profound impact on the Korean economy is the US declaration of withdrawal from the TPP... If major countries such as China do not fill the void left by the US, and instead engage in strategic competition driven by geo-economic interests, leading to instability in the regional order, the negative impact on the Korean economy will be amplified."

"In cases like the US, countries capable of retaliation within an asymmetrical relationship seek to maximize their own interests under the guise of fair trade. In response, the Korean government should primarily focus on two efforts: first, confirming that existing trade agreements (e.g., the Korea-US FTA) achieve a balance of interests between the two countries, and second, actively taking corrective measures by judging whether there are unfair practices in the implementation of existing agreements in accordance with international norms and rules."

"It is necessary to emphasize that the Korea-US FTA, unlike other FTAs, not only has not reduced jobs in the US but has also played a role in deepening and expanding economic relations between the two countries, and that US investment in Korea and job creation have increased since the conclusion of the Korea-US FTA... Korea needs to respond proactively to the demand for revision of the Korea-US FTA. This year marks the fifth anniversary of the FTA's entry into force, providing an opportunity for both countries to review past achievements and areas for improvement and to upgrade the agreement."

"Korea needs to consider the design of a regional architecture that embraces and connects various FTA negotiations underway within and outside the region, while developing the Korea-US alliance and the Korea-US FTA. In this context, establishing a roadmap for how to connect various networks such as RCEP, the Korea-China-Japan FTA, TPP, and the Korea-Japan FTA, and ultimately reach the FTAAP (Free Trade Area of the Asia-Pacific), is crucial. In this regard, Korea and Japan are in a pivotal position to harmonize the interests of both the US and China, making the resumption of Korea-Japan FTA negotiations a potentially beneficial option."

"In the case of Korea-US relations, if the US brings forth issues beyond traditional trade matters, linking them to currency coordination, investment balance, defense cost sharing, arms procurement, and security cooperation, the Korean side must prepare a more integrated response. In this regard, Korea's trade policy must be formulated with a broad perspective of economic diplomacy, and negotiations should be conducted with close cooperation among relevant ministries."

"Given the trend of establishing trade policies as a means of strategic competition between nations and for securing security interests, and considering that this trend will be further strengthened with the advent of the Trump administration and US-China competition, Korea must form a cross-ministerial policy network that can involve and coordinate various economic and social ministries, private actors, and even actors representing national strategy and security interests. Based on this network, a control tower should be established to formulate goals and strategies and lead negotiations."

Lead Author

Son Yeol_ Director of EAI Japan Center, Professor at Yonsei University. He holds a Ph.D. in Political Science from the University of Chicago and has served as a visiting professor at the University of Tokyo, Waseda University, and the University of North Carolina at Chapel Hill. His primary research areas include Japanese and international political economy, East Asian regionalism, and global governance.

EAI Issue Briefings provide expert diagnosis and analysis for a correct understanding of major domestic and international issues, and offer recommendations for desirable policy directions. EAI strives to provide balanced perspectives and create a platform for constructive policy discussions to generate ideas necessary for our society.