Why is Trump hitting South Korea harder?

U.S. President Donald Trump / Reuters

By Kim Jae-kyoung

Is U.S. President Donald Trump retaliating against South Korean President Moon Jae-in for pursuing pro-China and North Korea policies?

Or is it simply part of Trump's "America First" strategy to protect American manufacturers, including its own steelmakers?

Following a series of U.S. government trade attacks on Korean companies, policymakers here as well as the Korean public are scratching their heads over why the Trump administration is taking a harsher stance on South Korea, a long-time ally.

Market analysts said that what's happening is the result of a mixture of three factors ― Trump's "America First" policy, South Korea's vulnerable position in trade, and Moon's ambivalent attitude toward the U.S.

"This (Moon's ambivalent attitude) may be a reason, but I think more broadly Trump wants to show that he is being tough on trading partners that enjoy a surplus with the U.S.," Mauro, Guillen, director of the Lauder Institute at the University of Pennsylvania's Wharton School, told The Korea Times.

In his view, why the U.S. is targeting South Korean firms is because the country is an easier target to attack.

"Unlike China, Germany and Japan, Korea is a more vulnerable country," he said.

"Trump does not want to upset China any more, Germany is pivotal in Europe, and he gets along very well with Japan's Prime Minister."

Guillen thinks that Trump is also trying to cater to his voters and supporters.

"Remember that there are two audiences for his actions. One is Korea and Asia, and the other is his domestic base of support in the U.S.," he said.

Independent economist Andy Xie based in Shanghai echoed the view. "Trump has no strategy. It is just to impress his voters."

"South Korea is vulnerable because it doesn't have much room for retaliation. It is just an easy target," he added.

In a report released a week ago, the U.S. Department of Commerce outlined an array of recommendations Trump could take to protect American steel producers, which includes a 53 percent tariff on all steel products from 12 countries, including South Korea.

Korea was the only traditional ally to be included on the list of 12 countries. Canada, which is the biggest steel exporter to the U.S., as well as Japan and Germany were excluded.

The move came after Trump recently signed safeguard measures against Korean firms slapping 50 percent tariffs on washers exceeding a 1.2 million quota per year.

Antonio Fatas, a professor of economics at INSEAD's Singapore Campus, said that Trump has started translating his protectionist speech into actions by picking on a few goods and on a few countries.

Asked why those goods and countries are being singled out, he said, "I guess it serves a certain purpose to the interest groups _ whether this is someone inside the administration or someone outside."

"Is he hitting South Korea more because of its stance with North Korea? I doubt it but I must admit I cannot rule it out either."

Around the PyeongChang Winter Olympics, there are concerns that Moon is too keen to improve inter-Korean ties even at the risk of jeopardizing relations with the U.S.

Fatas called on the Moon administration to be realistic about the Trump administration to come up with proper measures.

"This is the reality of the Trump administration ― chaotic policies that might not have a clear strategic goal but are just the outcome of some poorly designed process," he said.

US steel industry ‘uncompetitive'

Describing Trump's tariff measures as "foolish," some experts said that such actions will be negative for the U.S. economy and consumers in the long run.

"I think the consequences of these proposed measures will be more damaging to the U.S. than the status quo," said James Rooney, professor of international finance at Sogong University.

"Therefore I view them as either foolish or misguided. Or they are simply negotiation postures and bluster for political purposes," he said.

Rooney has had long experience and knowledge of the steel industries of various countries, particularly the U.S., Japan, Korea and China.

"Basically at a fundamental level these tariff actions can only hurt the U.S. industries and consumers by raising the prices of these raw materials and finished goods and reducing their availability on their domestic market," he said.

From Rooney's perspective, the U.S. steel industry is fundamentally uncompetitive and has been now for many decades, even before POSCO was ever created.

"It has failed to modernize and reach the production economies of scale that are vital to competitiveness in such a high fixed-cost industry," he said.

He pointed out that if the concern is strategic supply, then it is better to focus on developing and supporting industrial competitiveness rather than protecting and thus promoting inefficiency.

"Putting tariffs on imported raw materials and finished goods only worsens the situation for the consumers in the target market whilst doing nothing to foster efficiency so that vital industries will be there in a time of strategic need," he said.

Any solutions?

President Moon has few options to fight back against Trump's protectionist measures.

He can either enrich communication with the U.S. or take Trump's tariff actions to the World Trade Organization (WTO).

"South Korean officials should continue to talk to their U.S. counterparts and explain why protectionism is not a good option in the long run," Guillen said.

"I see no other way of dealing with this problem."

Troy Stangarone, senior director at the Korea Economic Institute (KEI), said that Moon needs to raise these issues with the WTO even if it takes time to reach a final decision.

"The case will be important in setting the rules of the road going forward since the Trump administration is expanding its definition of national security," he said.