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Is 'non-response' Seoul’s countermeasure to Trump’s declaration of forex war?

Is 'non-response' Seoul’s countermeasure to Trump’s declaration of forex war?

Posted January. 19, 2017 07:07,   

Updated January. 19, 2017 07:15

한국어

After U.S. President-elect Donald Trump commented on Monday (local time) “The dollar is excessively strengthening,” other currencies including the won, the Japanese yen, and the Chinese yuan surged in value in the foreign exchange market. In the Seoul foreign exchange market, the won-dollar rate closed at 1166.7 won to the dollar on Wednesday, down 7.8 won from the previous day (1174.5 won). Analysts say Trump’s statement that “U.S. companies cannot compete with Chinese companies due to the strengthening dollar” constitutes his declaration of “new foreign exchange war.”

Trump’s pressure is especially menacing to Korea because it is penetrating the Korean economy’s weaknesses, namely jobs and export. The number of the unemployed in Korea exceeded 1 million last year for the first time since 2000, while the nation’s export has declined for two consecutive years for the first time since 1958. It is increasingly fearful that the chance for jobs to increase in Korea will actually disappear if Hyundai Motor Group, LG Electronics and other firms relocate their production plants from Korea to the U.S. due to their concern about Trump, and if export falls into a deeper slump due to the won’s appreciation. China is also continuously escalating its non-tariff barriers against Korean companies in connection with the planned deployment of the Terminal High Altitude Area Defense system in Korea. Former Minjoo Party Chairman Moon Jae-in announced Wednesday that (if elected) he will create 1.31 million jobs through more recruitment in the public sector on Wednesday, but we doubt if increasing jobs with taxpayers’ money at a time when private Korean companies are to flee the country can be sustainable.

Japan is under pressure in trade from the U.S. and China as well. Japan is at a different level from Korea, however, when it comes to “economic diplomacy.” For example, when Trump tweeted “(They) should not build a plant in Mexico” by targeting Toyota, Japan’s largest automaker, has contained the spread of Trump’s Twitter message by informing the “fact” “We are already creating *** number of jobs within the U.S.” Trump has claimed that the U.S. should bolt from the Trans Pacific Partnership Pact, but Japanese Prime Minister Shinzo Abe is poised to take the lead in liberating trade by saying that Tokyo is welcoming Washington’s participation in TPP, rather than directly resisting the U.S.’ move. As the Beijing-Tokyo ties deteriorated due to territorial dispute over the Senkaku Islands (Diaoyu Islands in Chinese), Japan has diversified its export market to the ASEAN region and already ended its dependence on China.

In contract, Deputy Prime Minister for Economy Yoo Il-ho’s statement on Wednesday that “We have to wait to see further” regarding Trump’s remarks on the strengthening dollar means that Seoul is lacking any notable strategy. The strategy to diversify Korea’s export market to reduce its heavy independence on China, which accounts for the largest share of Korea’s overseas shipment, was a mandate that the Korean government should have implemented from soon after the inauguration of the Park Geun-hye administration. If the U.S. officially suggests renegotiation of the Korea-U.S. free trade agreement immediately after Trump’s inauguration, will Yoo still be wasting time by saying that Seoul will wait to monitor the situation?