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

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

Son Yeol: Hello. I am Son Yeol, President of the East Asia Institute. Today, the world is gripped by the "Trump shock." Since President Trump took office this year, I think there have been about three stages. The first began with the imposition of tariffs on Mexico, Canada, and China, ostensibly to block illegal immigration or fentanyl. The second was the imposition of tariffs on steel, aluminum, automobiles, and other key industries to revive American manufacturing. Then, on April 2nd, the reciprocal tariffs were announced, which were a massive tariff bomb aimed at comprehensively correcting trade imbalances from a reciprocal trade perspective.

According to the U.S., its trade deficit is at a record high of $1.2 trillion, approximately 180 billion won, as of 2024. President Trump declared this an unsustainable emergency and decided to impose reciprocal tariffs, surprising the entire world. However, it was not entirely unexpected.

During the presidential campaign, there were discussions about imposing a universal tariff of 10% and 60% on China, which have now been implemented, and on a much larger scale than initially announced, causing shock worldwide. While this directly impacts the exports of trading partners like Korea, it can also be described as plunging the global economic order into chaos, or even collapse.

Korea, which has benefited from growth and prosperity within this established order, faces significant repercussions. Furthermore, this time, even allies have been subjected to tariff bombs, perhaps even more so. Therefore, suspicions about alliances have also been amplified by these tariff impositions. Today, we have invited two leading domestic experts to discuss the various issues surrounding the Trump tariff bomb and the future direction for Korea.

Q2. Underlying Factors of the Tariff Escalation: "A Combination of Distrust in Alliances and Political Intentions Beyond Economic Rationality"

Son Yeol: First, I would like to ask about the fundamental question: why did Trump impose such seemingly reckless and massive tariff bombs? What is Trump truly aiming for? What is his ultimate end goal? These questions continue to grow.

Choi Byung-il: This is Trump's second term. Comparing it to his first term, Trump's core mission from the outset was the revival of American manufacturing. Many people at the time thought that reviving American manufacturing was an anachronistic goal. This is because the U.S. currently plays a role in the international division of labor through advanced industries, services, and finance. Manufacturing has largely shifted to Asian countries capable of mass production at low cost, and the global value chain has moved overseas. The U.S. continues to drive growth and innovation through this system. So, the idea of reviving manufacturing seemed nonsensical. Is this the same old tactic?

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

That same year, he took out full-page advertisements in The New York Times and The Washington Post, which he paid for himself. The content was: "Why do we protect allies like Japan, who then enjoy free security while exporting massively to us? Why are they ripping us off and robbing us?" The expressions Trump uses today, like "rip-off" and "rape," first appeared back then.

Looking at Trump's worldview, as a Manhattan real estate developer in the 1980s, he believed the U.S. had won against emerging manufacturing nations. Now, having become allies, he provided them with a security umbrella, but they did not show gratitude and did not contribute to defense costs. This was in 1987, and he ran for president in 2016, so he has held this belief for over 30 years.

After his first term and now a comeback for his second, he carries the same worldview unchanged for 37 years. Now, that 'Japan' has been replaced by 'China,' and furthermore, there are many 'Second Japans' – Korea, Taiwan, Vietnam, Mexico, and so on. Ultimately, this is an extension of that worldview.

So, although Trump did many things in his first term, he has more powerful tariff pledges for his second term.Son: As President Son Yeol mentioned, he campaigned on imposing a 'universal tariff of 10%' on all countries, and now it has risen to 20%. In the context of the U.S.-China 21st-century hegemonic competition, Trump already identified China as the ultimate rival during his first term, naming it as such in national security reports and introducing the Indo-Pacific strategy. This indicates that even though Trump calls Xi Jinping his "great friend," he ultimately views China as his final rival. In his first term, Trump brought China to the negotiating table and reached a trade agreement. However, he left the White House before the phase one agreement could be fully implemented. What has happened during Biden's four years?

His goal upon returning is not only to implement this but also to decouple China from industries crucial for national security. One of the action plans outlined by his advisors is to impose tariffs of around 60% to completely block China's access to the U.S. market.

Furthermore, for key sectors, China will be completely excluded from the U.S. market over four years in a phased manner. To prevent China from enjoying Most Favored Nation (MFN) treatment upon its WTO accession, he has declared the revocation of the Permanent Normal Trade Relations (PNTR) status that China negotiated with the U.S. during the WTO accession process under the Clinton administration in 1999. These actions are proceeding steadily.

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

Therefore, whether it's reciprocal tariffs or universal tariffs led by the U.S., the goal is to use its power and leverage its vast market in bilateral relationships to resolve trade deficits and bring manufacturing back to the U.S. Since this cannot be achieved solely through U.S. investment, he wants to attract more leading global companies in the manufacturing sector. For example, TSMC in semiconductors and Hyundai Motor in automobiles already hold significant portions.

To achieve such goals, tariffs are not merely for negotiation; they must be consistently applied. Because the moment tariffs are removed, promises of manufacturing investment could become empty words.

The manufacturing industries Trump envisions are steel, aluminum, and aircraft – industries that made America a manufacturing powerhouse in the early 20th century, surpassing Britain. While we might consider this unrealistic today, when linked to national security – as U.S.-China competition intensifies and manufacturing capabilities, such as ship operation, decline, requiring materials like steel and aluminum – his thinking might not be entirely unfounded.

The methods are extremely drastic and shocking. Moreover, it's not solely targeting China but also encompassing allies, which has been a greater shock to us.

And Trump is particularly focused on the automotive industry. One can say he is fixated on steel and automobiles. Steel is a crucial input for automobile manufacturing and the foundation for all other sectors.

In his first term, in 2018, under Section 232, citing national security – although there was little room to invoke national security – tariffs were imposed on steel from both allies and non-allies. Korea, Japan, and Europe protested, asking, "Why are you threatening our national security, our very lives, when we are your allies?" Yet, he remained indifferent, sometimes stating that countries like Japan, Germany, and Korea, which have large trade surpluses with the U.S., are worse than Xi Jinping, Putin, or Kim Jong Un – he said the same thing this time.

Trump does not use the word "alliance" and also avoids the word "values." Instead of "alliance," he uses the word "friend," and sometimes implies that "friends" are worse than "enemies." This worldview is concerning. While discussing the protection of the automotive industry, he renegotiated NAFTA in his first term and changed its name to USMCA.

Son Yeol

Choi Byung-il: The question is whether Trump has good people around him. It seems that only those who can execute Trump's ideas are surrounding him. In his first term, the so-called "seniors" were globalists. They sympathized with Trump's concerns about America but believed that unilateral actions like Trump's could not completely replace the rule-based, free, and open trade system. These individuals were eventually ousted. And when Trump formed his second cabinet, he explicitly stated from the beginning that "there is no globalism in our cabinet."

Currently, the Secretary of the Treasury and the Secretary of Commerce are from Wall Street hedge funds. These individuals are adept at making money and are skilled negotiators who will do whatever it takes. The ideologues, such as Peter Navarro, who has conducted international studies at Harvard, are known for their unconventional thinking.The question is whether there are truly good people around Trump. It seems that only those who can execute Trump's ideas are around him. During his first term, the so-called seniors, who were globalists, sympathized with Trump's concerns about America's issues, but they believed that unilateral actions, like those Trump favored, could not completely replace rule-based, free and open trade. These individuals were eventually ousted. When forming his second cabinet, Trump explicitly stated from the outset that "there will be no such globalism in our cabinet."

It appears that Trump is surrounded by people who are unconcerned with values and principles as we understand them. Consequently, there are no "seniors" in the current cabinet who can restrain Trump. Everyone is vying to be the next Trump, a potential 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 believe we should be contemplating more about what we truly need to do and how we can survive.

Therefore, what is clear is that the consensus is that tariffs alone are insufficient. A prime example is when Trump boasts, "Look, by waving the tariff card, they are investing." However, this is merely a flattening of investment; actual investment has not materialized.

So, what is required to operate factories in the U.S.? Many people tell me that labor costs in the U.S. are about three times higher than in Southeast Asia. Even with these labor costs, are the workers disciplined and committed? No. They can quit at any time, and quality control is also an issue. The manufacturing value chain, built over decades in Southeast Asia, China, Taiwan, Korea, and Japan, has a distinct edge. To completely disregard this and shift manufacturing back to the U.S.? That seems nearly impossible.

Despite this, what Trump sees is that these factors are not important. "I have four years, I need to achieve results during this time, and then I can win over 51% of the swing states and run again." This political calculation overrides economic improvement.

Q3: Trump's Ultimate Goal?: "Aggression Towards China and the Revival of Domestic Manufacturing"

Choi Byung-il

Choi Byung-ilSince the topic has come up, let me add a little more before we conclude. Then, will Trump go all the way? This is very important, isn't it? How far will he go? It seems Trump himself doesn't know, but I believe two things are very important.

One is the reaction of the other countries. When the U.S. imposes high tariffs of 25%, 30%, or 45%, will some countries negotiate to increase imports from the U.S. as desired? Or will they say, "If the U.S. acts like this, then we will impose retaliatory tariffs too?"

Like China. China has already announced 34% tariffs. The EU also lacks the means for full-scale retaliation, so they will likely resort to partial or full retaliation. Canada will have to do so for domestic political reasons. The more countries that react this way, the more Trump will "double down," becoming more agitated and escalating tariffs, which will shock the market. Therefore, the reaction of these countries is a key factor.

Crucially, how will the market react? I see the market in three parts: Wall Street, with its stock prices; Main Street, with its political stock, which is Trump's base, having constituted 51% of his supporters. They are likely to tolerate Trump's experiments to a certain extent. They might think, "The U.S. has gone in the wrong direction for the past ten or twenty years. Trump is doing something new and correct – things like DEI, woke culture, etc." So, the question is, how long can their patience last?

And importantly, inflation will be a factor. During his first term, with 25% tariffs on steel, 10% on aluminum, and a full-blown tariff war against China, inflation did not rise significantly. Those around Trump were constantly debating whether the inflation would be severe if contained properly. So, that aspect needs to be watched. However, currently, too many variables are in play, leading to a very confusing situation.

Trump desires to be remembered for two things upon leaving office. First, regarding China: while many previous presidents believed China would become a responsible player within the rules-based multilateral system they had created, China did not act accordingly. Trump wants to be remembered as the first president to declare all-out war on China and to use tariffs as a tool to compel China to import more American goods through negotiations and to ensure their implementation.

Second, he wants to be remembered as the president who initiated the relocation of some manufacturing capabilities back to the U.S. during the 21st-century hegemonic competition, even without having core ideas or R&D in that area.

Q4: Prospects for the Global Trade System: "From a Principles-Based Multilateral Order to Selective Bilateral and Plurilateral Agreements Based on Strategic Interests"

Son Yeol: 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 protectionism and other new measures were anticipated, the reciprocal tariffs announced on April 2nd go beyond what we typically consider protectionist measures and can be seen as quite unprecedented. As I have mentioned before, in my view, this is the first such event since the establishment of the GATT system in 1947. This event is significant in several ways. Firstly, the U.S.'s dissatisfaction with the current system and the WTO system, which has been gradually intensifying, has now decisively erupted, and I believe we have crossed the Rubicon.

As President Son Yeol mentioned earlier, regardless of the sustainability of these tariff measures, the extent to which the U.S. can achieve its objectives through tariffs, or how the system will be altered in the process, the fact that such significant measures have been taken, creating tensions with various countries, strongly suggests that the multilateral system as we know it will no longer function effectively. This was decisively demonstrated by the reciprocal tariffs on April 2nd. Previously, protectionist measures were typically taken within the framework of agreements, whether it be WTO agreements, the Korea-U.S. FTA, or USMCA, or through restrictions and sanctions that favored domestic goods or discriminated against foreign goods.ChoiAs Director Choi mentioned, regardless of the sustainability of these tariff measures, how much the U.S. can achieve its objectives through tariffs, or how institutions will be reformed in the process, the imposition of measures at this level and the resulting tensions with various countries suggest that the multilateral system as we understand it may no longer function. I believe the mutual tariffs decided on April 2nd decisively demonstrated this. Previously, protectionist measures were taken within the framework of existing agreements, whether WTO, KORUS FTA, or USMCA, and involved actions such as imposing restrictions or sanctions on domestic goods or discriminating against foreign goods.

Until quite recently, such measures were gradually escalating, and when they proved insufficient, the Trump administration and subsequently the Biden administration expanded them to invoke national security issues within the framework of agreements to strengthen sanctions. There was still a sense of twisting arms within the agreement framework, moving in and out, and making new arguments. However, the current situation, from the outset, invokes provisions that are prohibited by Article I of the GATT. Therefore, it differs from previous protectionism. Rather than protectionism, it appears to be an attempt to promote a temporary, U.S.-centric managed trade system, through which short-term gains can be achieved by negotiating one-on-one with trading partners, and subsequently, the U.S. can use this as a basis to create a new normative order.

I think there are two main aspects. First, I believe the immediate concern is the fire at our feet, so to speak, and we will be busy putting out fires and responding country by country. For Korea, there is the short-term issue of cooperation with the United States on how to deal with and reduce the 25% tariffs on items such as steel, aluminum, automobiles, and semiconductors. Then, looking a bit longer term, if this is a new form of trade order, we must also consider the longer-term aspect of how we will participate in this new order and how we will protect our interests.

Currently, our government, businesses, and everyone else still view the issue through the lens of trade within the existing free trade and multilateral system, and thus are seeking solutions, exploring alternatives, changing laws, and pursuing industrial policies within that framework. However, if the fundamental form or template itself changes, the long-term ripple effects will inevitably manifest in various contexts, and it is highly likely that such changes will continue to occur. Therefore, I believe we must live with the challenge of how to respond to this as a long-term task.

Son Yeol: It's a kind of paradigm shift. The existing WTO system has come to an end, and managed trade by the US has entered in between, and we are moving towards a new paradigm through that. So, how is this evolving?

Lee Jae-min: It is difficult to predict, but fundamentally, the framework we have been accustomed to, where all countries consult and create a unified set of rules based on the principle of most-favored-nation (MFN) treatment, and pursue free trade within that bound system, will disappear.

Ultimately, reliable countries, countries that align with U.S. interests, or from the opposing perspective, countries like the EU or China, will form agreement systems, whether bilateral or plurilateral, within groups of countries that share their positions, and engage in a certain level of stable trade within those frameworks. This 'stable trade' will not be free trade, but rather a low-intensity system centered on a small number of participants, including various exceptions like national security exceptions or trade balance clauses (Skip Clause), and will likely involve open agreements that allow for periodic review and modification of that system.

The first step is the bilateral agreement that the U.S. is currently discussing. The creation of something through the framework of cooperation, consultation, and negotiation with each of us is, I believe, the first step. If this evolves slightly, it may move towards establishing new agreement systems in a plurilateral form with a few countries such as Korea, Japan, and Canada.

At the same time, dispute resolution procedures that we envision, or dispute resolution through panels or international courts, will outwardly remain, but attempting to achieve meaningful resolution through them will likely become difficult. Most disputes will likely be resolved politically or through technical legal solutions, with the remaining complex challenges being resolved through political and diplomatic channels. This is the form of dispute resolution process that we may see introduced going forward.

Q5: "Strengthening Identity as a Hub Country through Solidarity with Value-Sharing Nations… Must Pursue CPTPP Accession"

Son Yeol: Professor Lee Jae-min stated that the GATT and WTO systems have completely ended, and that the world is shifting towards creating a new trade order. Some existing analyses suggest that after the severe trials of Trump's four years, the U.S. might return, perhaps in a form of re-globalization. What are your thoughts on the future world order?

Choi Byung-il: The East Asia Institute has been intensively researching such international orders. I believe the question of whether the international order will move away from the liberal international order we know is different from the question of whether globalization is ending. I participated in the negotiations that led to the birth of the WTO, from the late 1980s to 1993, and during the Uruguay Round, the last GATT round, we decided to establish the WTO.

Then, the crucial difference between the existing GATT and WTO is that I believe international agreements always have two important aspects: implementation. Specifically, when powerful nations do not properly implement them, can weaker nations seek enforcement through reliable procedures? For them, if the U.S. or other powerful countries say they will not comply regardless of panel reports, it's the end of the matter.

However, the WTO created a system that resembles a political judiciary, establishing panels and a two-tiered appeal system to enforce compliance, which was hailed as a tremendous victory for the WTO. But now, the very country that created such a system, the U.S., is withdrawing. If the U.S. withdraws, will it completely disappear? I am somewhat cautious about this.

Because even though the U.S. is withdrawing, the other countries still remain. So, what will happen over the next four years is that the U.S., led by Trump, will engage in unilateral managed trade using tariff threats. It's the U.S. versus the world. However, for the remaining countries like Korea, Japan, China, and the EU, which collectively represent a much larger portion of international trade excluding the U.S., it remains to be seen whether they will explicitly reject the existing WTO and MFN principles, even if the WTO's dispute resolution system is not functioning. We need to watch this.

In such a case, there is no momentum for new negotiations. And the dispute resolution system that can guarantee existing implementation—this has actually been obstructed by the U.S., as evidenced by their failure to appoint new Appellate Body members. The Appellate Body has not been appointed since the Obama administration, citing that the system infringes upon U.S. trade sovereignty.

However, if the U.S. withdraws, it is possible that China and the EU might join hands and say, "Although our ideologies differ, abandoning the LIO is too painful. Finding alternative means is also too difficult. Let's try to do something among ourselves." This requires considerable imagination, but it's because other areas are so chaotic.

Even if it doesn't go as far as dispute resolution, the question of whether they have a reason to explicitly reject the existing system among themselves is an open-ended question. For example, even though the U.S. withdrew from the TPP under the Trump administration, the remaining countries moved forward and created the CPTPP. Similarly, just because the U.S. has withdrawn, it is difficult to consider the WTO system itself meaningless, and I would like to pose the question of whether the remaining countries will simply abandon the WTO framework; they might not. I think we need to watch this more closely.

Regarding globalization, my perspective is different. Since the WTO was established in 1995, not a single round of trade liberalization negotiations has been concluded. However, areas like commerce and digital trade are actively taking place globally. Every time we meet, we discuss digital trade, and it is happening impartially among countries. There are still no particular problems with the movement of people and ideas internationally.

However, I believe the bigger issue lies at the intersection of trade and security. As I mentioned earlier, if China proposes to other countries to "let's do it among ourselves" in a WTO without the U.S., can that proposal truly be accepted? Especially by countries that have played a significant role in trade, like the EU, Korea, and Australia? There is one such question. Even when the U.S. withdrew from the CPTPP, it has been maintained only among countries with free political systems, and with the UK joining, I believe the momentum will likely be centered around the CPTPP, forming a bloc of free-world nations. Professor Lee Jae-min and I have slightly different views on this, seeing the focus differently. Therefore, for the CPTPP to gain momentum, it needs to attract more countries, and I believe it will move in that direction.

Son Yeol: This leads to discussions about Korea joining the CPTPP. While it is a political decision for Korea, could you please explain the conditions under which Korea could join the CPTPP?

Choi Byung-il: It has a considerable history. In fact, we should have participated in the TPP negotiations before the CPTPP, but we missed the opportunity. At that time, the Park Geun-hye administration questioned why we needed to pursue the CPTPP, which had overlapping objectives with the TPP, given that most major countries were already involved in the TPP. Furthermore, due to the strong public backlash against beef imports during the Lee Myung-bak administration, there were concerns about political burdens. Also, among the major countries with which we do not have an FTA is China. So, it was seen as a matter of choice. That is in the past. Then, when the TPP was launched, the Park Geun-hye administration suddenly realized its oversight. I still remember President Park giving a speech in the U.S., perhaps at CSIS, stating that Korea would be the first country to join the CPTPP. However, due to political circumstances, it became the time of the Moon Jae-in administration, and as you know, the relationship between Korea and Japan was very strained.

Japan was quite content with having created the CPTPP, believing they were in a position to collect membership fees from other countries joining. They adopted a high-handed attitude towards Korea. At that time, due to the economic dispute between Korea and Japan, the conditions were the worst possible. In the early days of the Moon administration, there was a period of complete stagnation in preparation, with arguments between those advocating for CPTPP accession and those opposing it.

However, the situation has changed again. From Japan's perspective, they would welcome Korea, a like-minded country, to join. In that regard, the external conditions are not unfavorable, but the political direction remains uncertain.

I have researched trade negotiations and trade policy for decades, and I can empirically state that the issue of openness in Korea's trade negotiations has always been overly politicized. However, in retrospect, despite opposition, the feared consequences have rarely materialized when negotiations proceeded. This has been demonstrated in cases such as screen quotas, imports of U.S. agricultural products, and beef imports (Korea is currently one of the top three importers of U.S. beef). My own experience with telecommunications negotiations also confirms this. Conversely, the financial industry, which we tried to protect by avoiding imports, is a prime example of a sector where we failed to achieve our goals.

Therefore, Korea has a 35-year track record of experiencing that embracing reform and openness, despite the complex cultural codes and the roles of businesspeople, and the challenges of the global market, ultimately led to positive outcomes. This accumulated experience is significant.

Therefore, if politicians internalize these lessons, they will need the wisdom to utilize instruments like the CPTPP as one of the key cards to overcome Trump's tariff threats. However, whenever this issue arises, many approach it with the argument that it is politically burdensome for a newly inaugurated government. If we follow that logic, the only reform achieved by South Korea in the 21st century would be the Korea-U.S. FTA. In that regard, I believe this matter needs to be viewed differently.

Beyond that, there are many areas where we can exercise our imagination. The Korea-Japan FTA, which we have with Japan besides the U.S., 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 regarding the Korea-India FTA, we signed a precursor agreement called CEPA (Comprehensive Economic Partnership Agreement) when India's economic power was weak. However, India's capabilities have significantly improved, and we could upgrade it. Therefore, while we must resolve issues with the U.S. separately, if we reorganize and rebuild the FTAs we signed in the early 21st century as a hub country, we can create sufficient new opportunities.

The ASEAN FTA also needs to be upgraded. Agreements like Korea-Vietnam and Korea-Indonesia are being steadily upgraded. Coincidentally, on April 2nd, Trump's Liberation Day, the reciprocal tariffs include countries like China, Bangladesh, Vietnam, and Colombia, which are countries where Korean manufacturers have sought to diversify their 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. knows this and has imposed high tariffs. In this situation, we cannot negotiate; Vietnam and India are limited.

Ultimately, one of the solutions is to consolidate free trade among the remaining countries, excluding the U.S. If we expand this discussion, could Trump's assertion of "Make America Great Again" or "America First" inadvertently lead to a division of the global trading system into a world where bilateral relationships exist between the U.S. and individual countries, and the remaining countries have their own order and rules that the U.S. cannot control? And in that world, without U.S. influence.

If that happens, whereas in the past the U.S. had the power to lead, redesign, and expand norms within the WTO despite having certain dissatisfactions, if the U.S. itself withdraws as it is now, its influence on the international stage, at least in trade, will become extremely limited. Whether such considerations are part of Trump's calculations is currently unknown.

Q6: Short-term Response Strategy: Diplomacy with the U.S. "Expand domestic accessibility of U.S. products and build trust by moving beyond reliance on the Korea-U.S. FTA through multi-faceted cooperation."

Lee Jae-min: I believe it is important to create a long-term plan. One positive aspect, I think, is that we have finally let go of our lingering attachment to the Korea-U.S. FTA and WTO systems. Looking back, the fact that we can no longer expect to resolve issues through them, or think that 'since our tariff rate is 0%, even with some fluctuating issues in our relationship with the U.S., we can continue within this framework,' is a significant starting point, especially from Korea's perspective.

The fact that we have let go of that attachment and are now approaching the situation with a realistic perspective is, I believe, an important starting point. In that context, there are various areas where the U.S. wants or needs to cooperate with Korea. Actively seeking cooperation and coordination between the two countries in those areas, and to some extent accommodating what the U.S. demands and desires, while also reflecting our own interests—ensuring stable exports of our products to the U.S., and achieving some reflection of our interests in certain items, even if not to the same extent as before—is likely to be the most crucial aspect going forward.

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

Rather, the key issue now is how much of the U.S.'s current demands Korea can accept, and what aspects we can leverage against the U.S. Through this, finding elements of cooperation and compromise in certain areas between the two countries is the pressing issue.

Son Yeol: If we want to avoid Trump's tariff threats, he demands that we lower our tariffs, dismantle barriers, and stop currency manipulation. So, if we dismantle tariffs and non-tariff barriers as much as possible to create an environment where we can buy more U.S. products, and be more transparent about currency issues, then perhaps, even though these are Trump's words, we could do that.

Lee Jae-min: That's correct. We can think that way, but the problem is that many of the so-called non-tariff barriers that the U.S. talks about are difficult for us to change. Of course, there are some we can change. For example, import regulations and quarantine measures can be approached more proactively from a technical standpoint. In this context, with some internal persuasion and domestic adjustments, and legal improvements, some of the U.S. demands could be accommodated as negotiable non-tariff barriers.

Beyond that, many of the issues referred to as non-tariff barriers are often differences in national policy or perspectives that are difficult for us to improve or change, making them hard to address in the short term. This includes issues like value-added tax and currency exchange rates.

However, within the scope of currency policy, there is still much debate about whether it serves as a trade-distorting tool with manipulative effects or simply as economic policy. Therefore, these are representative areas where it is difficult or impossible for us to fully accept all the non-tariff barriers that the U.S. discusses.

Therefore, I believe that President Trump's emphasis on non-tariff barriers and currency issues ultimately stems from the question of why we don't buy more U.S. products, or why they don't sell well. From the perspective of President Trump and his associates, it seems they are not particularly concerned about the reasons why they don't sell well, whether it's tariff barriers, non-tariff barriers, or the invisible hand.

Korean cars sell 100,000 units in the U.S., but for some reason, U.S. cars don't sell in Seoul. Whether that statistic is accurate or not, President Trump said on April 2nd that 81% of cars circulating in Seoul are Made in Korea. For whatever reason, why don't U.S. cars sell in Seoul? I interpreted this as a demand to create an environment where U.S. products, whether agricultural or manufactured goods, sell better in trading partner countries. To meet this demand, as I mentioned, we need to find rational and proactive solutions for negotiable non-tariff barriers, and demonstrate to the U.S. and other countries that we are making such efforts.

Furthermore, beyond the issue of non-tariff barriers, we need to create an environment where U.S. products can sell more reasonably in the Korean market, regardless of tariff or non-tariff barriers. In the long term, this could be a way to adjust trade surpluses and, from the U.S. perspective, trade deficits, and I believe it is an important task going forward.

Third, outside the existing framework, we need to demonstrate that we are assisting with the U.S.'s security considerations and concerns in areas where the U.S. has expectations from Korea—such as defense industry, shipbuilding, semiconductor supply chains, expanding investment in the U.S., biotechnology, and LNG energy cooperation. Overall, the U.S.'s trade concerns regarding Korea stem not from our faults, but from the fact that we are so successful and U.S. products sell so poorly in Seoul. We need to make efforts to alleviate those concerns to some extent, and cooperate to mitigate some of the U.S.'s security concerns.

I believe overcoming the current situation in this manner would be beneficial. The measures I've mentioned cannot be resolved within the framework of the Korea-U.S. FTA. While that framework will continue to operate, it will be difficult to resolve our current situation within it. We need to find solutions outside that framework. While the shock is unavoidable, the task ahead is to seek a soft landing rather than a hard landing.

Q7: Policy Towards China and U.S.-China Competition "U.S. Tariff Threats Present an Opportunity for China… Korea Should Seek Indirect Benefits through Industrial Advancement"

Son Yeol: With Trump in the spotlight, discussions about China de-risking are barely happening. While Korea has failed to restructure in areas like petrochemicals and steel plates, China has expanded its market dominance, and recently, its low-price offensive has intensified, causing significant difficulties in the market. Therefore, there have been discussions about anti-dumping measures against China. How should our trade policy towards China proceed, including these issues?

Lee Jae-min: If the trade system continues to fragment into various forms and operate outside established norms, rather than being maintained within the WTO framework, I believe China will seize significant opportunities.

China has always had a strong manufacturing base, and now it possesses considerable technological prowess. Crucially, China also has a significant level of capability in the digital economy, even if not at the absolute cutting edge. By effectively combining these strengths, China will have numerous opportunities to engage in diverse trade activities beyond the scope of WTO agreements or agreements based on WTO principles—such as the Korea-China FTA or RCEP.

In that context, China's attempts—whether through stronger government support for state-owned enterprises, expansion into the Korean market via cross-border e-commerce platforms, or the introduction of various low-priced goods into neighboring markets (including Korea)—are likely to become more diverse and frequent than before.

If this trend continues, I believe China, rather than the U.S., will find more opportunities to expand into international bond markets, overseas markets, and economic markets, escaping U.S. containment.

The United States is currently focusing more on defending its domestic market and revitalizing its manufacturing sector through its tariff policy. Therefore, while the containment of China through US-China competition, which was a key focus during the Biden administration, will continue, the current emphasis is inevitably shifting towards the recovery of the US manufacturing sector and domestic political and economic vitality. Consequently, it is thought that the existing US checks and various sanctions against China may not be easily maintained going forward.

From a geopolitical perspective, US-China competition will persist. However, purely in terms of trade, it seems that an environment is emerging where China can find more opportunities. Of course, this premise depends on the assumption that the Chinese economy is functioning well, as it too faces difficulties. Within this trade framework, it appears that China's potential is increasing.

This implies that Chinese companies' expansion into Korea and Chinese goods' entry into the Korean market will likely increase. Furthermore, goods that face difficulties entering the US market may have no choice but to come to Korea. If this leads to various new attempts, it is conceivable that Korea's vulnerability to the influx of Chinese goods into its market will grow.

Choi Byung-il: It seems difficult. This is because, fundamentally, we must ask ourselves what China represents to us, and simultaneously, how China views Korea becomes a problem. The issue is further complicated because trade and security are intertwined.

From China's perspective, based on my consultations, Korea is perceived as the weakest link among US allies. Moreover, as a weak link, when the US-China issue arises, public opinion within Korea is considerably divided, and the country's stance swings significantly depending on the administration in power. This is highly disadvantageous from our perspective. Our strength, despite Trump's aggressive approach, lies in considering whether Trump's actions will ultimately lead to a resolution. The US also has weaknesses.

The US weakness is that while Trump has promised investment to build factories to achieve manufacturing superpower status, it is currently impossible for the US system to produce goods from these factories in a timely manner; it requires a very long process. However, within the manufacturing sectors Trump desires, there are areas where, as Lee Jae-min mentioned, we can contribute. If we cooperate in areas where we can bring benefits without provoking Trump—for instance, we cannot borrow China's strength for shipbuilding or naval vessel construction, can we? Nor would we build data centers with China's help in the context of US-China competition in AI. And we cannot purchase energy or aircraft from China.

These present opportunities for us. Therefore, in this context, in advanced manufacturing sectors where China has already surpassed us or is closing the gap, our corporate leaders are undoubtedly considering these as opportunities for innovation and even reversal that China cannot offer us.

Consequently, during Trump's four years, while strengthening US manufacturing and pressuring China with tariffs, Chinese tariffs have effectively reached almost 100%. Although I would need to calculate it precisely, during Trump's first term, tariffs were already raised by about 20%. In his second term, there have been 10% and 10% increases. While not yet implemented, the tariff on crude oil imports from Venezuela is 25%, and if these are added, Trump has already raised tariffs by 70%. This brings the total close to 100%, making trade virtually impossible.

These present opportunities for us. The issue is that if this is framed not as an 'alliance' but simply as, 'Korea's help is truly needed to make America great again,' then there might be opportunities for our manufacturing sector. These manufacturing opportunities are ultimately chances to regain an edge in manufacturing competition with China. We need mechanisms that level the playing field for our companies, at least to some extent. This is where industrial policy and labor policy come into play.

Such policies should ensure that we receive at least the same political benefits that Chinese companies receive, and ideally, a level of support comparable to what politicians in Japan or Europe provide to their companies. However, if this area is viewed through partisan lenses, framed as anti-US or pro-China, we risk failing to seize opportunities even when they exist.

Q8: Policy Implications "Korea, Caught Between US and China Pressure, Faces Limits Relying Solely on Corporate Self-Reliance... Institutional Support from the Government is Indispensable"

Choi Byung-il: This is what I want to emphasize: 'The strong do not survive, but those who survive become strong.' In the past, I might have dismissed this as mere wordplay, but now I see that we truly need to prove that we can survive and become strong.

Trade has been crucial for the Republic of Korea to reach its current standing. Our exports were primarily aimed at importing goods we lacked. Our transformation from an agricultural nation to a manufacturing and advanced manufacturing powerhouse was driven not only by our ability to produce well but also, fundamentally, by the need to import what we did not possess, such as crude oil and agricultural products. This transformation was underpinned by a rule-based multilateral system, which is now being shaken. This makes our situation particularly precarious compared to other nations.

The proportion of manufacturing in our total GDP is the highest among G7 nations. With Trump disrupting the manufacturing sector, we face a double shock. However, we should not view this solely as a negative. Ultimately, we must survive, and the wisdom to survive lies in reaching a consensus. While there may be barriers on paper, we must seize the opportunities. I believe companies will adapt. However, for this adaptation to be less difficult and less painful, the role of our politics is crucial.

Son Yeol: In other words, we need policy support to maintain and enhance competitiveness in the manufacturing sector.

Choi Byung-il: Exactly. At the very least, we should not be at a disadvantage compared to the support that other countries—China, Japan, Europe, and others—provide to their companies.

Q9: Conclusion "Accurate Grasp of the Future Trade Order's Direction and Proactive Thinking for Competitiveness Enhancement are Necessary"

Son Yeol: To summarize our extensive discussion today.

First, Trump's tariff shock is a disruptive event that is dismantling the existing order. Therefore, while short-term responses should involve skillful negotiations with the US regarding Korean trade, particularly exports, long-term strategies require a thorough foresight and understanding of the future international trade order and systematic responses. This was one of the key points made.

Second, a certain degree of de-Americanization seems inevitable within this context. Therefore, it was suggested that Korea's trade, and particularly its economic diplomacy, should expand its strategic space beyond the existing US-China framework to include Japan, Southeast Asia, India, Australia, and further into Europe. Within this scope, the effective utilization of the CPTPP, as emphasized by Professor Choi Byung-il, is also important.

Third, while the US is requesting a significant expansion of Korean imports, and although some of these requests may appear unfair from our perspective, we should actively pursue those that are feasible. This serves to appease the US, but it is also necessary for the competitiveness of the Korean economy and industry to undertake structural reforms.

Finally, as you have just mentioned, to sustain Korea's manufacturing competitiveness, we must survive Trump's tariffs and the fierce competition from China. This requires political effort. Considering the support provided by countries like Europe, Japan, and even China to their companies, we need to approach this matter more proactively.

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

■ [Commentary] Trump Shock, Trade War, and Korea's Challenges Watch Video

■ Son Yeol_Director of the East Asia Institute. Professor at Yonsei University Graduate School of International Studies.

■ Lee Jae-min_Dean of Seoul National University School of Law.

■ Choi Byung-il_Director of the Trade Strategy Innovation Hub at Bae, Kim & Lee LLC. Professor Emeritus at Ewha Womans University.

■ Managed and Edited by: Kim Chaerin_EAI Research Assistant

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