Contingency plans urged for Trump shock on economy

By Kim Jae-kyoung

Korea must come up with contingency plans to cushion the country against any upcoming Trump shock, analysts said Wednesday.

United States President Donald Trump’s abrupt visa issuance and travel ban on refugees and seven Middle Eastern and North African countries won’t have an immediate impact on Koreans, but the action signals that he will fulfill his campaign pledges whatever it takes.

Given Trump vowed to reverse trade deficits during his campaign, the odds are growing that his attacks on the economic and trade fronts will soon materialize causing a global trade war in the near future.

“As always, it is hard to predict what future Trump policies will be, but this is a confirmation that he will do what he said during the campaign,” Antonio Fatas, a professor of economics at INSEAD, told The Korea Times.

“His administration is run by a group of incompetents both from an economic and legal point of view,” he added. “He reacts to mistakes and negative feedback by trying something bigger. He seeks revenge.”

Last Friday, the volatile leader and his administration abruptly banned citizens from seven Muslim-majority countries from entering the United States, sending shock waves throughout the world and heightening uncertainty in the global economy.

Modification of deals

From the perspective of Korea, this is not good news, although the effects of the travel ban itself will be small for the country’s economy in the immediate future.

During his election campaign, Trump indicated that he would call for the modification of key political and economic deals, such as cost-sharing arrangements for U.S. troops here and the Korea-U.S. Free Trade Agreement.

Also, he has pledged to combat alleged currency manipulation by export-oriented Asian countries with huge trade surpluses, such as Korea and China.

What is of concern is that the Trump shocks may come earlier than expected without any notice.

It is likely that he will push for lopsided policies only in favor of the U.S. regardless of their effects on the global economy.

“We have learned that we will see more of the same in the future on trade issues and economic policy,” said the Singapore-based Fatas.

“For Asia, this is also a confirmation that U.S. policies will be centered on domestic issues and will ignore the effects on others,” he said. “Uncertainty keeps increasing in the fragile global economic environment.”

Lack of sense of urgency

Despite the urgency of the situation, Korea’s policymakers look a bit laidback. They are lacking not only a sense of urgency but also proper contingency plans. They still haven’t got an effective channel of communication with the Trump administration.

With the travel ban case, they must realize that Trump won’t be easy on any countries even if they are long-time allies if anything is against what he sees as U.S. interests.

A series of executive orders signed by Trump are good examples. As soon as he was sworn in as the 45th president, Trump signed orders for the U.S. to withdraw from the Trans-Pacific Partnership and to build a wall along the U.S.-Mexican border.

Against this backdrop, they need to look into details of key military and trade deals and come up with scenario-based plans on how to respond when the U.S. requests renegotiations.

“We will find the Trump administration much more intensely demanding actions and policies from foreign governments that are consistent with U.S. interests,” said Jeffrey Jones, an international lawyer at Kim & Chang and former chairman of the American Chamber of Commerce in Korea.

There will be a remarkable decline in the willingness to compromise,” he added. “The Trump administration will be unwilling to give special concessions to Korea and this will require the new administration in Korea to be especially skillful in pursuing policies important for Korea.”

In particular, Korea’s policymakers should not be relieved or distracted by Trump’s rhetoric. Regardless of what he says, the government should prepare for the worst-case scenario.

In a telephone conversation with Korea’s acting president Hwang Kyo-ahn on Monday, Trump vowed to cooperate with South Korea “100 percent,” saying that bilateral relations would be “better than ever before.”

This should not be taken as a signal that Trump will be backing off from his assertion that Korea should pay more to keep U.S. troops in Korea. His comments came ahead of U.S. Defense Secretary James Mattis’ visit to Seoul Thursday.

Steven Weber, a professor of political science at the University of California, Berkeley, said that the best approach right now is to pay a little less attention to what the Trump administration says, and focus on what it does.

“I think it’s obvious by now that the President does not pay much attention to what he says and writes on Twitter,” he said. “To me, much of that is a distraction. I will be watching what he does, not what he says.”