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The next trade war

Jan 27,2018
Washington is expected to keep up its trade offensive and barrage of barriers. The U.S. dollar nose-dived to a three-year low after Treasury Secretary Steven Mnuchin indicated Washington’s preference for a weak dollar on Wednesday.

“Obviously a weak dollar is good for us as it relates to trade and opportunities”, he said, adding that weakening was “not a concern of ours at all” during his visit to Davos, Switzerland, for the annual World Economic Forum.

His comment immediately riled the international markets. The dollar fell 1 percent to 89.21 against a basket of six currencies, the first dip below 90 since December 2014.

It slipped another 1 percent and stopped after President Donald Trump, also in Davos, said Mnuchin’s comments were “taken out of context” and added, “The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar.”

In the past, though, Trump has said he prefers a weaker dollar to help U.S. trade. Therefore, he cannot be truly trusted to mean otherwise this time.

A weak dollar is in line with the Trump administration’s protectionist trade policy. Higher tariffs on imports and a weaker dollar would strengthen American industry and feed the government’s “America First” agenda.

Korea Inc. must brace for a currency battle on top of heavier trade barriers. Trump stamped safeguard measures on washing machines and solar cells, including up to 50 percent tariffs on Samsung and LG washers and 30 percent tariffs on solar cells from Korea.

Washington in the past has turned to a weak dollar to solve its trade deficits. The 1985 Plaza Agreement notoriously made the dollar weak and Japanese yen strong.

During its talks with the United States to revise their free trade agreement, the Korean government must build its case, and companies must strengthen their competitiveness in products and marketing against new challenges on the trade front.

JoongAng Ilbo, Jan. 27, Page 26