[INTERVIEW] US-China feud may continue after 2020

Troy Stangarone

Korea urged to foster entrepreneurship to maximize software power

This is the sixth in a series of interviews with global economists to see how the ongoing trade disputes will unfold and to analyze their implications for the Korean economy ― ED.

By Lee Kyung-min

Korea should map out a long-term strategy to cope with potential impacts from the trade dispute between the U.S. and China as the feud is expected to last well beyond 2020, a U.S. economics expert said Sunday.

He said the Chinese government's decision to allow its currency to breach the symbolically significant 7 yuan per dollar was more of a show of determination than an economically motivated policy choice.

"It was a political decision designed to send a message to the U.S. in the ongoing trade war," Troy Stangarone, senior director of Congressional Affairs and Trade at the Korea Economic Institute, told The Korea Times in an email interview. "I wouldn't expect a currency war, but we shouldn't expect the trade war to end until after the 2020 elections in the U.S."

He said a currency war would be difficult for both countries, especially China amid a slower-than-expected growth outlook.

"The U.S. would have few tools to devalue the dollar and a currency war would most likely result in making the dollar stronger, as the dollar tends to strengthen in a crisis as investors seek a safe haven," Stangarone said.

"China would risk making debts denominated in dollars more expensive, potentially further weakening its own economy and undermining its efforts to further focus its economy on domestic consumption."

Sandwiched between US, China

Stangarone said the Korean government should be aware that while China's slowing economy is painfully felt here, as evidenced by a continued drop in exports over the past few months, Korea might be unable to look to the U.S. for help to cushion some of the decline.

This is because the world's largest economy is becoming more sensitive to trade deficits with other trading partner countries amid the drawn-out feud with China.

"Unlike in the past, Korean exporters may not be able to look to the U.S. to make up for losses elsewhere," Stangarone said.

For example, despite the aftermath of the Asian Financial Crisis in 1998, Korean exports to the U.S. grew 5.5 percent while they were down in most other parts of Asia.

Since then, China has been a strong source for growth, but the U.S. is often the second-most-important to Korea.

Similarly, immediately after the global financial crisis in 2010, Korean exports jumped back almost equally in China and the U.S.

Further, when exports fell in 2015, the Korea-U.S. Free Trade Agreement (KORUS FTA) helped place a floor on the decline and exports to the U.S. fell by less than to China and the European Union.

However, Korea can no longer expect such "exceptions."

"Due to the political sensitivity in the U.S., an increase in exports from Korea to compensate for losses in China will likely only lead to greater scrutiny by the U.S," Stangarone said.

Possibilities of 5G

Regarding the Korean economy's future, Stangarone stressed that the country should make more efforts to strengthen its software power by prioritizing engineering and creating a business and social environment to enrich entrepreneurship.

"To tap into the possibilities of 5G, Korea needs to develop the type of software engineering and entrepreneurship that will allow it to utilize the potential that 5G offers," he said.

5G is the fifth-generation cellular network technology, through which the fast exchange of large quantities of information will be possible.

Examples of 5G-enabled progress will include super-connected autonomous cars, smart communities, the industrial internet of things and immersive education.

Stangarone's emphasis on boosting software development comes from deeper analysis of how technology works to help in the everyday lives of people.

"Because of the significant increase in the amount of data that is transferred and the reduction in latency, 5G makes it possible to do applications such as autonomous vehicles," he said. "The value in autonomous vehicles will come not from the engineering side, but from the ability to develop dependable software to make them autonomous."

Stangarone believes that the new technology, well under way for development for full integration of people's lives, will open possibilities that we might not have thought of, with 4G a case in point.

"The most promising 5G applications will likely be in areas no one has thought of yet. When 4G was deployed, no one would have imagined the sharing apps such as Uber that have developed or that a social networking site would become one of the world's most valuable companies," Stangarone said.

"When we think of 5G, it is the platform that makes new software functions such as autonomous vehicles possible. It will not only make possible the internet of things, where Samsung may be well-placed, but will also help to enable virtual reality and advanced scientific research. The government should set up policies and create an environment whereby the software development can thrive."

Government initiatives mindful of this aspect will help overcome vulnerabilities exposed by the recent trade feud with Japan that restricted the export of key materials needed for Korea to make semiconductors.

"When modern supply chains were set up, there was no consideration that countries might weaponize those same supply chains to pressure other countries," Stangarone said. "A more robust services economy would make Korea less vulnerable to the types of action that Japan is taking."

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