The world is taken aback by a looming trade war that has been triggered by U.S. President Donald Trump. After President Trump said last week that his administration would impose 25 percent tariff to all countries exporting steel to the United States, the European Union and China also immediately declared they would take retaliatory measures. The European Union started considering retaliatory tariffs on major U.S. products including Harley-Davison motorcycles, Levi’s jeans and bourbon whiskeys. The Canadian foreign ministry has also said that it will put in place corresponding measures to protect our trade interests and workers.
The foreign ministry of China, the country with the largest trade surplus with the United States, has said that it will safeguard legitimate rights by taking necessary measures. Retaliatory measures considered are diverse and include retaliatory tariffs on U.S. agricultural products including bean and corn, and antidumping investigation of U.S. companies in China. Moreover, the Trump administration recently expressed its intention to return to the Transpacific Partnership pact that was created under the leadership of Japan and Australia, which further escalates worries over a trade war due to the emergence of new trade blocs in the global economy coupled with trade protectionism.
In the wake of trade war triggered by President Trump, not only major U.S. media outlets but also policymakers are voicing concern. Senior White House officials including Gary Cohn, chairman of the National Economic Council, and the leadership in the ruling Republican Party are also expressing strong opposition to the new measures. Robert Shiller, Nobel prize winner and professor of economics at Yale University, told a television interview that the current situation is similar to what happened during the Great Depression. As the New York stock market crashed in 1929, President Herbert Hoover chose to use a populist policy the following year to impose 59 percent tariff on imports rather than strengthening the competitiveness of American industry through restructuring. In response, European countries including Britain and France countered the measure with tariff barriers, which eventually led to a decline in global trade, spreading the depression to across the world and prolonging the slump.
Korea is one of the countries that could take the biggest hit in the event of a trade war, as it heavily depends on international trade for growth. Korea could find itself squeezed in an intense trade war between the United States and China. The Korean government and the private sector should make all-out efforts to ensure Korea’s position will be reflected before President Trump actually signs an executive order on tariff measures this week. Business organizations including the Federation of Korean Industries are staging far-reaching campaigns including sending of letters to more than 500 leaders in the U.S. political and business circles to urge Washington to exclude Korea from the U.S. sanctions on steel imports, but those endeavors are hardly sufficient. The government should speed up measures to strengthen economic fundamentals including restructuring of the shipbuilding sector, which is progressing at a snail’s pace, to prepare itself for the worst case scenario. The government should also consider slowing the pace of measures that could reduce the competitiveness of Korean enterprises including minimum wages and reduction of working hours.