Trump’s safeguard signals the coming of global trade war

U.S. President Donald Trump imposed 15-50 percent safeguard tariffs on imported washing machines and solar panels for the next four years on Monday (local time). This will impose Samsung Electronics and LG Electronics a 20 percent tariff for volume less than 1.2 million products and a 50 percent tariff for volume exceeding 1.2 million from this month. Domestic businesses are bound to lose price competitiveness as steep tariffs mean higher consumer price. Exports of Korean businesses will suffer a blow from American protectionism if more tariffs are underway.

This decision made after a 16-year hiatus signals the coming of Trump’s global trade war. There is a high possibility of increased trade protection against Korea, a trade-deficit country, and China, the largest trade-deficit country. Trump is reviewing possibilities of designating China as a currency manipulator and imposing retaliatory tariffs against the country’s intellectual property theft under Section 301 of the Trade Act of 1974. America’s protectionist move will be prolonged as there is a fat chance of Trump trying to broaden the base of supporters by protecting American businesses for his re-election in 2020.

Korean companies have limited resources to respond to Trump’s protectionism. “The U.S. decision to impose tariffs on Korean washers and solar panels constitutes a violation of WTO agreements,” Korean Trade Minister Kim Hyun-chong said Tuesday, adding that the ministry plans to file a petition with the World Trade Organization (WTO). However, the whole process will take several years even if the ministry wins the case. The worst case scenario would be reinstatement of tariffs on Korean automobiles in the KORUS FTA amendment negotiations.

Korea also needs to prepare for collateral damage caused by the trade war between the United States and China. Considering the growing similarities in the industrial structure of Korea and China, Korean products are also likely to suffer from anti-dumping sanctions when trade sanctions against China increase Korean exports to the United States. The Trump administration will finalize within this month its decision on restricting imports that may threaten national security under Section 232 of the Trade Expansion Act of 1962. The main target is China, but Korean aluminum and steel products will also be directly affected.

The World Economic Forum (WEF) kicked off Tuesday under the theme of “Creating a shared future in a fractured world.” President Trump will participate in the forum as an incumbent president of the United States, which is the first time in 18 years, and call for new international trade orders saying that the existing trade agreements including NAFTA operate to America’s disadvantage. But other heads of state that support globalization by lifting trade barriers will strongly criticize Trump’s “America First” policy. Korea should raise its voice together with other states against U.S. protectionism, and at the same time, brace itself for a prolonged trade war by diversifying markets and developing premium products that will withstand price hikes.