Korea should guard against global trade wars
Washer tariffs signal beginning of trade wars from Trump
By Kim Jae-kyoung
Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis
SINGAPORE ― South Korea must speed up its move to diversify export markets in a bid to minimize potential effects from U.S.-led global trade wars, according to Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis.
She said Donald Trump’s stiff tariffs on washing machines and solar panels are signaling the beginning of trade wars against foreign competitors, particularly Asian exporters.
“Without a doubt, this is just the beginning,” said Garcia-Herrero in a recent interview.
The key reason for such assertiveness from her is that the U.S. administration has opted for the bluntest tool it could use, namely outright import tariffs, not antidumping measures.
“This is proof of how little the U.S. administration cares about the World Trade Organization (WTO) and about what the rest of the world think,” she said.
Her advice came as Trump signed measures in late January to impose stiff tariffs on imported washing machines and solar panels, most of which come from South Korea and China, the first major step by his administration to protect its manufacturers.
South Korea has vowed to lodge official complaints with the WTO over the latest import duties. On Feb. 1, South Korea and the U.S. failed to narrow differences over key trade issues in their second round of talks to amend the bilateral free trade pact (KORUS FTA).
“As you know, Korea will be affected as a good part of the washing machines assembled in Mexico ― largest exporter of washing machines into the U.S. ― come from Korea,” she said.
She expressed concerns that China is the main target of Trump’s “America first” strategy but Korea is more vulnerable to U.S. measures because Korea has no tools to fight back.
“Korea is the second target after China but Korea does not have the key tool that China has to counteract U.S. pressure, namely huge holdings of U.S. treasury bills,” she said. “In other words, it will be tougher for Korea.”
The veteran economist stressed that South Korean firms should develop new markets as the Trump administration will continue to explore ways to reduce the U.S. trade deficit with major trading partners.
The ASEAN market is a good alternative
In her view, some underdeveloped markets, such as the Association of Southeast Asian Nations (ASEAN) and the Middle East, could be good alternatives.
“The only way out is to find other markets. Korea should expand its links to emerging markets, India being the most obvious but also Indonesia and Latin America and the Middle East,” she said.
“Without emerging markets, Korea will not be able to maintain its export edge. Exports to the U.S. will become more difficult and costly.”
Regarding ASEAN markets, she said that the ASEAN is not very homogenous so Korea might need to focus on key countries.
“The key bets for Korea are Vietnam and the Philippines. Both will become the two key assembly centers for semiconductors and they will be less dominated by China than Malaysia is,” she said.
Garcia-Herrero believes the reason why the U.S. tariffs focus on two key products without targeting a specific producer is because the unbiased attitude with no targeted country seems to suggest that the U.S. is willing to defend domestic industries no matter where the source of threat may originate.
In a recent analysis by Natixis, she said that the sum of solar panels and washing machines only accounts for a small proportion of Chinese exports, but it is hard to argue that China, as well as other Asian manufacturing exporters, will not be harmed by these measures.
“One way out, at least on paper, would be for the WTO to respond to the U.S. proposal,” she said.
She pointed out that, still, the threat of the U.S. abandoning the WTO does not put the institution in a very comfortable position to address concerns from China or other Asian producers.
“Beyond the potential extension of U.S. tariffs to other import goods, a soft response ― or silence from the WTO ― could open the door to other major economies following the U.S. in their quest for a ‘supposedly’ fairer trade relation with China and other Asian countries,” she said.
“The challenges against Chinese as well as Asian exports have only started, with the beginning of the year,” she added. “If the U.S. action is acquiesced or even agreed to, more hurdles are expected to come. All in all, we expect a difficult year ahead for Asia-US trade relations.”