APEC meeting crucial for breaking tariff stalemate with US

President Lee Jae Myung shakes hands with U.S. President Donald Trump during a meeting in the Oval Office of the White House in Washington, Aug. 25. AP-Yonhap

Korea must view the upcoming Asia-Pacific Economic Cooperation (APEC) meetings in Gyeongju, North Gyeongsang Province, as a crucial opportunity to break the current trade impasse with the United States, experts and industry officials said.

Korea wants to reach an official settlement with the world’s largest economy, as the two countries have achieved little progress in finalizing the details of their July 30 tariff deal.

On Sept. 25 (local time), U.S. President Donald Trump demanded that Korea make its $350 billion investment in the U.S. in cash, underscoring that the payment should be made “up front.”

Korea cannot realistically accept those terms, as the nation’s foreign exchange reserves sit at some $416 billion as of the end of August. If Korea spends more than 80 percent of its reserves on U.S. investments, it will deal a severe blow to the nation’s capital and foreign exchange market.

Given Trump’s outwardly provocative rhetoric, chances appear slim for Korea to narrow the lingering difference anytime soon, so the strategic importance of the APEC meetings is growing larger.

APEC meetings will take place from late October through early November, with the flagship APEC Economic Leaders’ Meeting scheduled for two days starting Oct. 31. Although it remains uncertain whether Trump will attend the gathering of national leaders, the U.S. president is set to visit Korea during APEC and is expected to meet with President Lee Jae Myung and Chinese President Xi Jinping on the sidelines of the event.

Workers wait to be processed during an immigration raid by U.S. federal agents at the site of a $4.3 billion plant by Hyundai Motor and LG Energy Solution to build batteries for electric cars in Georgia, Sept. 4, in a still image taken from a video by U.S. Immigration and Customs Enforcement. Reuters-Yonhap

Experts advised the government and the National Assembly to join forces as one team and refrain from using any unnecessarily negative rhetoric, particularly against the U.S.

“Even if President Lee rarely makes any direct messages against the two major economic powerhouses, ranking officials from the presidential office and lawmakers should stop making any provocative remarks against the U.S. in public, at least until the APEC summit,” said Choi June-sun, professor emeritus of law at Sungkyunkwan University.

Trump is already well aware that the investment demand is way too excessive for Korea, but this is simply a part of his political strategy to gain more from his allies, according to Choi.

The professor said the U.S. is now stepping up its pressure against Korea to maintain leverage in trade negotiations.

“Some 300 Korean workers were recently detained in Georgia in an immigration raid at a factory site of Hyundai Motor, which is an apparent show of force from the U.S. amid its unsettled tariff negotiation with Korea,” he said.

However, Korea should not respond emotionally to such pressure from the U.S., and maintain a rational attitude until the tariff negotiation comes to a complete end, according to the expert.

“Some lawmakers and government officials make careless messages against the U.S., but they should be aware that the U.S. monitors every single message from high-ranking bureaucrats and influential figures in the political circle,” Choi said. “They should also refrain from making unnecessary remarks on China, as the U.S. keeps testing its allies’ stance on China.”

Cars parked and ready for export at a port in Pyeongtaek, Gyeonggi Province, Aug. 7. Yonhap

Korea University economist Kim Jin-ill said that Trump is using a political strategy called “deadcatting,” or making shocking remarks or announcements on purpose to divert attention away from a certain topic.

“Simply put, the U.S. is making a challenging demand, so Korea cannot accept it,” said Kim, who served as a senior economist on the Federal Reserve Board.

“It is realistically impossible for each side to make concessions on the agenda, so they will have to keep holding talks to iron out differences.”

When asked about a scenario where Korea makes the $350 billion cash investment using foreign exchange reserves, Kim said it would have a short-term, direct impact on the market and the economy.

“However, it is still hard to anticipate how much it will affect the won-dollar exchange rate,” he said.

Officials from the auto industry also expressed hopes for the APEC meeting to serve as a key facilitator to end Korea’s trade stalemate with the U.S.

The auto industry has been hit hard by the unsettled tariff deal, as local carmakers including Hyundai Motor, Kia and Genesis are still subject to a 25 percent levy in the U.S., even as their rivals in Japan and Europe have gained price competitiveness through a reduced 15 percent tariff.

“The carmakers are now shouldering the tariff-related financial burden without pushing for any price hikes, for fear of losing their market share in the U.S., which does no good to the export-reliant Korean economy,” an official from the industry said. “At APEC, local automakers are pinning hopes for Korea and the U.S. to find a breakthrough in their tariff talks.”