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Surviving the trade war

Korean companies still have overly high stakes in the Chinese market and that’s risky.
Mar 27,2018
The administration of President Donald Trump has initiated trade offensives against China, which has a $1 billion daily trade surplus with the United States. Chinese President Xi Jinping, who has justified his own indefinite rule with a promise to make China the world’s superpower, is hardly likely to accept this easily. A trade war between the two biggest economies has just begun. The fallout inevitably will land on South Korea.

South Korean companies have stakes in Chinese enterprises and supply parts for many of China’s finished goods. China’s exporters rely heavily on imported intermediary parts. More than 70 percent of Korean shipments to China are intermediary goods. When Korea’s semiconductor and display exports are threatened, so is the Korean economy.

How far will America go with its trade war with China? The United States has prepared for one even before anti-China Trump took office. The United States has been an immense money-making market for Chinese products and capital. But China restricts foreign entities from having access to its massive markets. Washington has learned that it was naïve to believe that China, under the World Trade Organization, would open up and become less controlling in line with its economic prosperity. It admits that it has underestimated Beijing’s masked ambitions. If it does not take tougher actions, Washington feels China could soon outpace the United States in economic scale and global influence.

According to a survey by the Pew Research Center, Americans’ negativity towards China has grown 26 percentage points over the last decade. In last year’s survey, 22 percent of Americans bore hostile sentiment towards China and 43 percent believed China posed a serious threat. “Hillbilly Elegy,” with its poignant portrayal of poor and isolated white families in the Rust Belt, was last year’s bestseller in the United States. Voters in the struggling industrial regions put Trump in office after he promised to improve their livelihoods by placing the blame on China. They backed Trump’s campaign in a battle of justice to end unfairness and exploitation by the Chinese.

What can trade-reliant Korea do to come out of the crossfire unscathed? There are some upsides from America’s higher trade barriers on China. Korea Inc. can benefit under the protection of a free trade agreement with the United States. Korea must ensure that its tariff incentives are not affected by the trade friction between the two largest economies. Seoul must draw assurances from Washington that Korean products will not fall victim to its arbitrary tariff hikes. It must convince Washington that the Korean market does not work like China’s.

Seoul also must assure the United States that it is not pro-China. The U.S. Congress is as polarized as Korea’s, but becomes united in distrusting China. Rival parties back the government-proposed bill to prevent U.S. technologies related to national security from leaking overseas. That is why Broadcom’s bid to acquire Qualcomm is being challenged by U.S. authorities. Washington suspects Beijing is behind Broadcom’s move. The suspicion could spread to Korean capital if Washington deems Seoul overly tight with Beijing.

At the same time, Korea must raise its resilience. It must consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (Cptpp) regardless of U.S. withdrawal from the Trans-Pacific Partnership. The Cptpp framework is aimed to reduce state control and accelerate the opening of the Chinese market. China won’t make Korea an exception merely because it is not a Cptpp member. If Seoul chooses to keep a low profile, it will only invite more bullying from Beijing.

Korea Inc. does not seem to have learned a lesson from the Chinese retaliation for the installation of the Terminal High Altitude Area Defense (Thaad) system. They still have overly high stakes in the Chinese market. The absence of balance in the legislative and judicial systems, and lack of press freedom translates into risk for investments in China. What are seemingly huge opportunities can later backfire.

To survive the ongoing trade war between America and China, Korea must get over the mindset that the United States is an ally in security and China is an ally in economics. Ultimately, it must overhaul its economic structure. The Korean economy has so far been entirely driven by manufacturing. It must build and strengthen the services sector to create jobs and seek revenues overseas by offering high-quality services.


Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, March 26, Page 29

*The author is a professor of Ewha Womans University Graduate School of International Studies.

Choi Byung-il