New Trade Partners

By Candace Kim

One of the key policies of U.S. President-elect Barack Obama is said to be protective trade. The trade economies of the world are eyeing his every move to see whether he will actually pursue such action.

From a Korean perspective, I think that President Lee Myung-bak is correct in urging the passage of the Korea-U.S. free trade agreement (FTA) by the National Assembly.

When we take a deeper look at the economic picture of the United States, its consumers may not be able to enjoy buying Korean goods like they have for the last decade.

When U.S. home prices were constantly rising year after year, many American consumers used their house like an ATM, putting them up as collateral for second mortgages, to withdraw funds to purchase wide-screen television sets, new cars, and granite-top kitchen counters.

Now, according to the latest statistics, more than one third of American house owners are paying off mortgages greater than the current fair market value of their house.

And housing prices continue to fall in the U.S. This situation combined with rising unemployment and huge losses in stock and mutual fund values means that American consumer purchasing power is greatly diminished.

Also, for the last 10 years the average rate of savings by Americans has steadily fallen until it is now zero or even a negative rate. So future levels of American consumer spending on Korean products will be much lower.

President-elect Obama, backed by Democratic Party majorities in both houses of Congress, is very likely to increase federal spending, raise income and corporate taxes, increase regulations on business and industry, and continue a large military presence overseas.

This will lead to a longer and deeper recession than would have otherwise occurred. More people from America will be willing to move to Asia for better opportunities and Korean companies that are alert will be able to hire new employees who are highly skilled, motivated and active.

The U.S. should not forget the valuable lesson it learned from the Great Depression. During that era the U.S. erected trade barriers and levied higher tariffs on imports, other nations followed in retaliation to protect their domestic industries, and the level of total world trade decreased, lengthening and deepening the depression worldwide.

Korea should set a good example by approving the FTA with the U.S. and buying those American products that are of good quality and value to help America as the U.S. helped Korea during the 1997-98 Asian financial crises. Then when America recovers it will be more willing to accept Korean goods and again buy large quantities from us.

What about Korea during this difficult transition to the future economy? Korea's continued prosperity is strongly tied to growth in exports and considering what the U.S. will go through over the next decade, nations other than America will become more important for our future trade.

Korea should focus on trading more with other nations as the level of consumer spending in the U.S. falls.

Unlike the U.S. government and most American consumers, who generally do not save but rather borrow to finance purchases creating debt, Asian countries will recover from this economic recession faster because Asians generally are savers and capital creators.

Large markets in India, China and Japan as well as smaller markets such as Australia and New Zealand; European nations such as Norway and Switzerland; and other large markets such as Russia and Brazil; will continue to grow and their consumers will be eager to buy Korean products.

This is why Korea should look more at other countries as trade partners, not only for exports but with penetration by Korean companies into these markets. Strengthening foreign distribution networks and customizing on-location strategies will accelerate globalization of Korean companies.

Past trade with the U.S. has been very important to Korea. However the world is changing. We should be in tune with these movements, listening closely as the world economic tempo changes, adapting our theme as the ever-changing market environment turns.

Countermeasures to President-elect Obama's expected protective trade policies would be merely a defensive technique and not helpful to our American friends in their time of need or beneficial to Korea, that critically needs trade to prosper.

Rather we should develop an offensive strategy to increase trade with other countries as the world economy develops.

Candace Kim, founder of Halcyon Search International, has been working in the executive search industry for more than 16 years. She has made many successful executive placements in Korea and other Asian markets. She can be reached at ck@halcyonsearch.com