Asian stock markets plummeted Monday on concerns that the trade war between the U.S. and China will intensify once again. The benchmark Korea Composite Stock Price Index (KOSPI) fell by 2.56 percent and the Korean Securities Dealers Automated Quotations (KOSDAQ) plunged by 7.46 percent to fall below 600 on the day. Affected by Japan’s economic retaliation and U.S.-China trade dispute, the won-dollar exchange rate reached its highest in three years and five months.
Other Asian markets, including China, Japan, and Taiwan, plunged as well. The Nikkei 225 lost 1.74 percent and Chinese, Taiwan, and Hong Kong stock markets dropped as well. There were slumps in foreign exchange markets, too. China’s yuan breached the critical level of 7 against the dollar while Japan’s yen soared. Economic uncertainties have lowered the price of raw materials and raised the price of risk-free assets, such as gold, dollar, and yen.
The biggest reason to all of this is that the U.S.-China trade dispute, which had appeared to remain on hold, has started to escalate once again. U.S. President Donald Trump said on Thursday that the U.S. will impose a new 10 percent tariffs on another 300 billion dollars worth of Chinese goods starting from September 1, and China pledged countermeasures. If the new round of tariffs take effect, almost all Chinese goods that are imported to the U.S. will be slapped with higher tariffs. Dow fell immediately right after Trump’s announcement. Now it is taking a toll on Asian stock markets.
Free trade, a trade policy led by the U.S. that has driven the growth of European countries, China, Japan, and many more, is being threatened by “America first” policy by the Trump administration. A fight for hegemony among advanced countries, which encompasses economy, technology, and diplomacy, is changing the global trade order and increasing economic uncertainties.
South Korea is largely affected by global economy and global trade as it is highly dependent on trade. A protracted trade war between the U.S. and China will put a strain on the global trade and the global economy. The U.S. cut its interest rate although its economy does not need rate cuts yet and China’s yuan is weakening recently, giving rise to fears of a foreign exchange war. South Korea should brace itself for uncertainties at home and abroad by raising its guard against turmoil in the global financial market as well as implementing sound economic policies and strengthening its industrial competitiveness.