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National egoism by Trump administration

Posted January. 09, 2017 07:05,   

Updated January. 09, 2017 07:16

한국어

A national egoism of U.S. president-elect Donald Trump has begun to affect the management of global companies. It all started by his Twitter post on Thursday (local time) that said, “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.” the Japanese company immediately took a step backward with the announcement, “Toyota looks forward to collaborating with the Trump administration to serve in the best interests of consumers and the automotive industry.” Cho Seong-jin, vice chairman of LG Electronics, said at a world-largest Consumer Electronics Show 2017 (CES), “LG plans to decide whether to build a manufacturing plant in the U.S. within the first half of the year.”

Imposing border tax, a type of value added tax, on a certain company because it manufactures its products in Mexico in cheaper price and exports them to the U.S. can be interpreted as a violation against WTO regulations set forth based on free trade. Rather than pinpointing on irrationality of imposing border tax, however, Japanese Finance Minister Taro Aso is focusing more on persuading the U.S. by explaining how much contribution Japan has made by producing large volume of cars and creating many job opportunities. He seems to have seen through the logic of power where the confrontation to the Trump administration, which could make the boomerang fly back to Tokyo.

A production base of any business is decided through comprehensive consideration of many factors not only taxes but also location, business environment and what not. Given this, the LG Electronics’ plan on North America factory appears not to be come out as a response to what Trump has said. Still, it’s clear that the tactic of the Trump administration that gives benefits to business constructing their factories in the U.S. while disadvantaging others whose factories in non-American soil seems to have far-reaching effect on how businesses are making their decision. If not only large Korean conglomerates whose production bases are in Mexico but others whose bases are in Korea intend to move their plants to the U.S., jobs and tax money may be drained out to the U.S. as well.

Showcasing a series of new technologies such as autonomous vehicles with artificial intelligence, virtual reality, drones with Internet of Things and many more, global companies proved that they have overcome the technological limit at the CES 2017, which closed on Sunday. The giant leap made by Chinese smart car and smart phone makers has already come to the extent that threatens Korean businesses that have been stranded by unfavorable factors home and abroad such as protectionism and political uncertainties in the world of 4th industrial revolution with technological convergence and hyper connection.

In an effort to promote overseas Korean companies to return to Korea, the Korean government established a law that supports U-turn companies in 2013. The law, however, has made only about 80 companies make a U-turn and LG Electronics was the only one among conglomerates. While opposition ruling parties have contended to raise corporate tax, the draining of Korean companies means larger corporate taxes paid to other nations. Only political circle seems to live in a different world.