A trade war whose scale could rise to threaten the global trade order looms large, as the US and major trading nations are threatening tit-for-tat actions against each other. This certainly poses a grave challenge to South Korea, whose economy relies on exports.
It may be too early to predict how many and how fierce the battlefronts will be, but the latest statements from US President Donald Trump and leaders of countries like China, the European Union, Canada and Mexico point to a large-scale trade war in the making.
Trump declared the war by announcing a 25-per-cent tariff on all steel imports and a 10-per-cent tariff on foreign aluminium products. He invoked the rarely used Section 232 of the 1962 Trade Expansion Act which authorises the Secretary of Commerce to conduct comprehensive investigations to determine the effects of imports of any article on the US national security. The latest in a series of Trump’s “America First” initiatives, the decision has met swift, strong backlash from major trading nations, including Washington’s security allies.
China threatened to slap retaliatory tariffs on US farm products like soybeans, and the EU said it too could impose tariffs on signature American brands like Harley Davison motorbikes, Levi’s jeans and bourbon. Canada and Mexico, both members of the North American Free Trade Agreement, also warned that they would take strong countermeasures.
These kinds of tit-for-tat retaliations raise the spectre of protectionism and endanger the global free trade system backed by the World Trade Organisation.
As with his other America First policies, Trump’s protectionist move faces criticism even inside the US, with news reports saying that some of his advisers opposed imposition of the new tariffs.
Critics point out that the tariffs will do more harm than good to the overall US economy. One convincing argument is that the tariffs – whereas they would provide a shield to the US steel industry – will increase steel prices, which will backfire on consumers and industries using steel, including the car industry.
In terms of employment, the same argument goes that the number of American jobs to be lost in other industries because of the higher steel prices would be greater than that of workers to be added to the steel sector.
Notwithstanding, Trump remains as steadfast and defiant as ever. As one after another foreign leader warns of countermeasures against the tariffs on steel and aluminium imports, Trump even dialled up the tone, going on to threaten to impose duties on European cars.
With the world on the brink of the fiercest trade war in recent years, the tasks before South Korea are evident. Most of all, both the government and businesses need to minimise negative impact on domestic industries.
South Korea had already felt the heat from Trump’s protectionism as Washington slapped safeguard measures that pushed up import tariffs on washing machines and solar panels
The 25-per-cent tariff on steel products, Korea’s seventh-biggest export item to the US, also comes on top of anti-dumping and countervailing duties imposed on them. No wonder South Korea’s steel exports to the US plummeted 38 per cent to $3.25 billion (Bt101.7 billion) last year from $5.2 billion in 2014.
The new US action will deal a heavy blow to Korean steel companies and they need to work together to minimise the impact by devising measures like raising competitiveness and diversifying export markets.
What is unfolding before us is also a good reminder that we need to make a complete review of trade policy per se the US under Trump. One certain thing is that when it comes to economic matters, there is neither a permanent friend nor enemy.