'Korea should look into CPTPP, capture opportunities in US reshoring'

gettyimagesbank

By Kim Bo-eun

The election of Democrat Joe Biden as U.S. president is drawing the attention of governments around the world to economic policies to be implemented under his administration, given that a shift will likely occur from the Trump government.

This is expected in trade policies as Biden has shown his support for a multilateral framework rather than bilateral deals. The next president is also expected to push for re-shoring to boost the U.S. economy. Experts advise Korea to observe and prepare for policy shifts under the new U.S. administration that will be launched in January.

Shift to multilateral framework, joining forces with allies

Biden's pledges are in contrast to existing policies under the current administration in a number of sectors, partly based on efforts to undo Trump's policies. In trade, Biden is not expected to deviate from U.S. policies pressuring China and may continue the tendency toward protectionism in the interests of the local economy. Yet, what may differ from Trump is a focus back to multilateralism.

The Trump administration has disregarded the World Trade Organization (WTO), blocking the authority from resolving trade disputes as it engaged in tariff wars with other economies.

In the meantime, Biden supported free trade for three decades as a member of Congress, and supported the launch of NAFTA. As vice president in the Barack Obama administration, he supported the U.S. participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as a means to contain China's growing influence.

Based on such tendencies, the president-elect is expected to reinforce the WTO and back multilateral frameworks.

Biden has stated that fixing trade policies will not be a priority as he faces more urgent tasks in reviving the U.S. economy by creating jobs and increasing investment.

Yet the new president is expected to opt for a more stable stance in terms of trade ― likely within a multilateral framework ― which would be a shift from the erratic, unilateral actions Trump has taken in imposing tariffs.

Biden has implied that joining hands with allies in pressuring China would be a better strategy than engaging in a tariff war. But the U.S. may keep tariffs on China intact for the time being.

While the president-elect does not appear to have immediate intentions to join the CPTPP, the U.S. could review this at a later time.

The CPTPP, which evolved from the Trans-Pacific Partnership, is a free trade agreement between Canada and 10 countries in the Asia-Pacific region: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The CPTPP would be the third-largest free-trade area in the world by GDP.

The U.S. could seek to rejoin the CPTPP to contain China's influence. China has also expressed interest, however, in joining the trade bloc.

Korea may need to prepare to join CPTPP

If the U.S. decides to participate in the CPTPP, it may call for its allies to follow suit. Korea, as one of its allies which is not yet part of the CPTPP, may face the choice of joining the trade bloc. The world's largest economy would likely become the leading country in the trade pact and may accordingly call trading partners within the bloc to adhere to stricter environmental and labor standards it sets.

Projections for stricter environmental standards are based on Biden's stance on carbon emissions, which he wants to take to net zero in the U.S. by 2050.

Strengthened labor regulations are projected based on Biden's pro-labor tendencies. The Democrats were behind devising better labor protections in a new trade pact among the U.S., Canada and Mexico that went into effect in July.

Korea has not joined the CPTPP because it already had bilateral trade agreements with most of the member countries of the trade bloc.

"If Korea were to take part in the CPTPP, this would lead to free trade agreements with Japan and Mexico. If Korea were faced with the decision, it would have to figure out the benefits and costs to draw a strategic conclusion," said Kang Gu-sang, associate senior researcher of Korea Institute for International Economic Policy.

"Korea, as a potential member of the CPTPP, may need to prepare for strict environmental and labor standards that may go into effect."

Opportunities in US reshoring

Another key pledge of Biden is to bring back American businesses that left for offshore production.

This has become a key drive for the Biden administration, given the shortages of masks the U.S. suffered this year amid the COVID-19 pandemic due to the absence of production facilities in the country.

Biden is seeking to achieve this re-shoring goal, in particular in the manufacturing of medical supplies, by penalizing U.S. businesses that offshore jobs, and introducing tax incentives to reward investments in U.S.-based manufacturing.

Kang said there will be opportunities for Korean businesses in certain sectors to work together with the U.S. companies seeking to take production back home.

“Korea as an ally with strengths in the sectors of automobiles and semiconductors could find opportunities as U.S. businesses restructure their supply chains,” the researcher said.