How Will a Trump Presidency Affect Korea's Trade?

  • By Kang Young-soo, Kim Seung-bum, Lee Sung-hoon, Yoon Hyung-jun

    November 10, 2016 12:38

    Korea's business community appeared as shocked by the news of Donald Trump's victory in the U.S. presidential election as everyone else.

    Trump has been threatening to become more protectionist throughout his campaign and specially singled out the Korea-U.S. free trade agreement as a "catastrophe" that needs to be renegotiated.

    If the U.S. steps up trade pressure, Korea is expected to take a major hit as its vital export engines sputter. "Of course an export-dependent country like Korea will be impacted by protectionist trade policies," said Cheong In-kyo at Inha University said. "If Trump lives up to his campaign pledges, Korea will suffer a huge blow."

    Korea has relied on a strategy of expanding export markets by forging FTAs, but Trump's election win has cast dark clouds over the entire global free-trade regime.

    The state-run Korea Development Institute projects that the loss of tariff concessions in renegotiation of the Korea-U.S. FTA could result in US$26.9 billion in lost exports and 240,000 lost jobs by 2021.

    Korea's trade surplus with the U.S. rose from $11.6 billion in 2011, before the FTA went into effect, to $25.8 billion last year. Due to the growth slowdown in China, the U.S. now accounts for 13.6 percent of Korea's exports, up from 13.3 percent last year.

    But Je Hyun-jung at the Korea International Trade Association said Trump's protectionist policies will not have a major impact, since the FTA encompasses 98 percent of Korea's exports and the tariff on most of them is already zero, making it virtually impossible to re-impose tariffs.

    Instead, the U.S. could increase trade pressure. Washington has already been tightening trade checks as it headed into its election season. So far this year, it has slapped punitive tariffs on five Korean export items.

    Trump has also threatened to pull out of the Trans-Pacific Partnership, the 12-nation trade agreement which Korea had hoped to join.

    Major export industries -- cars, electronics and steel -- stand to take direct hits after Trump's win. The real estate mogul has repeatedly vowed to put U.S. interests first and is expected to intensify trade pressure on Korea to boost American jobs.

    The car and car parts industries are likely to be the hardest hit. Korea exported 1.07 million cars to the U.S. last year, including 800,000 by Hyundai and affiliate Kia, and shipments of automotive parts totaled $6.6 billion. At present they are tariff-free thanks to the FTA.

    Trump's win could also hurt plans by major Korean conglomerates to expand production bases overseas because he has vowed to impose 45-percent and 35-percent punitive tariffs on products from China and Mexico. Korean businesses have built plants there to take advantage of cheap labor and trade agreements for exports to the U.S.

    Samsung and LG both manufacture TV sets and other household products in Mexico that are imported tariff-free into the U.S. thanks to the North American Free Trade Agreement. If Trump lives up to his campaign pledge, their prices could rise 35 percent.

    Samsung and LG were already slapped with a provisional 110-percent tariff last July on washing machines they make in China.

    Korean automakers, too, will have to rethink their overseas production plans. In September Kia spent more than W1 trillion to build a plant in Mexico that can produce 400,000 cars a year (US$1=W1,150).

    "If they can't sell cars made in Mexico in the U.S. they need to look for other markets, but this will not be easy," said Km Pil-soo at Daelim University. "The domestic car industry will take a huge hit in terms of its global production strategy."

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