Is S. Korea ready for trade war planned by Trump?

The U.S. media reported that the country’s former President Donald Trump is considering a plan to impose a tariff of 60 percent on Chinese-made products by classifying China as a hostile country if he wins the presidential election in November and takes back the presidential office. It is a much more aggressive tariff policy compared to the existing one that imposes an additional tariff of 10 percentage points on foreign products imported into the U.S. If this policy is put in place after the former president’s win in the election, China will take retaliatory measures, which will cause an all-out trade war between the two countries.

According to The Washington Post, the former president is preparing a high tariff on thousands of Chinese products, which were subject to a tariff of 25 percent during the former president’s term in 2018 and 2019. The new tariff rate is expected to be more than double the existing one. Even revoking China’s status as a “most favored nation” for trade is being considered to avoid the World Trade Organization’s rule of ensuring equal treatment among its member countries. The share of Chinese products in the U.S.’s imports from January to November last year was 13.9 percent, the lowest since 2004, due to the trade tensions between the two countries that began during the Trump administration.

What’s problematic is that the trade war caused by Trump can critically impact South Korea. China is one of South Korea’s major trade partners, accounting for 20 percent of South Korea’s exports, even though the share of South Korean products in China’s imports decreased to 6.3 percent last year, the lowest during the last 30 years. If fewer Chinese products are exported to the U.S., South Korean semiconductors, machinery, petrochemical products, etc. used to produce Chinese products will be impacted. This means South Korean companies need to quickly find alternative sources of sales in the Middle East, Southeast Asia, and Latin America.

Furthermore, the biggest reason for Trump’s restrictions on Chinese-made imports is the large trade surplus earned by China from its trade with the U.S. South Korea recorded 44.5 billion dollars of trade surplus last year from its trade with the U.S. An issue faced by the former Moon Jae-in administration, which had to make significant concessions as the Trump administration demanded a renegotiation of the South Korea-U.S. free trade agreement claiming that it was unfavorable to the U.S, can be repeated. South Korean companies building plants in the U.S. following the Inflation Reduction Act might face some challenges as the Joe Biden administration is proclaiming to abolish the act.

The possibility of Trump’s second term in office is the most significant risk to this year’s global economy. Japan and other advanced countries began efforts to influence the direction of U.S. policies that might have unfavorable effects on them by mobilizing figures close to the Trump camp. It will create irreversible damage if the South Korean administration and political circles miss out on the large flow of reorganizing international trade orders while only focusing on the general elections and other domestic issues.