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Analysis, Economics

Brace for a trade war

The Korean government must make all-out efforts to minimize impact of US-China conflicts.


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Updated: March 27, 2018

A US-China trade war is brewing. The US administration announced Friday that it would impose tariffs on up to $60 billion in annual imports from China to punish Beijing for what President Donald Trump described as the theft of American technology and Chinese pressure on US companies to hand it over.

China hit back. Beijing announced plans for retaliatory tariffs on $3 billion of US imports, though that reaction was technically in response to earlier steel and aluminum tariffs. The list covers 128 products including fruit, pork and steel pipes.

The Chinese ambassador to the US did not rule out his nation scaling back the purchase of US government debt if the two nations end up in a trade war. China is the largest foreign holder of US Treasurys, with $1.17 trillion in holdings.

Both sides have revealed a determination to fight, raising fears of a total trade war.

“This is the first of many” trade actions, US President Trump said as he signed the executive memorandum that would impose the retaliatory tariffs.

China “firmly opposes” tariffs and “would fight to the end” of a trade war, the Chinese Embassy in Washington said in a statement.

If the Group of Two’s fight for economic hegemony rages, South Korea cannot but bear the brunt of it.

China and the US are South Korea’s two largest trading partners, with China accounting for 25 percent of its exports and the US 12 percent.

If the nation’s exports shrink as the two superpowers bump into each other, its export-driven economy will be severely hit. Trade accounted for 68.8 percent of South Korea’s gross domestic product last year.

Furthermore, the share of intermediary goods in the nation’s exports to China is as high as 79 percent. China processes them into finished products to export to the US. If the US restricts imports from China, the nation’s exports of intermediary goods to China will inevitably suffer heavy damage.

The problem is Washington and Beijing are pressing their trading partners to take their side.

If it takes one side rashly, South Korea will face harsh consequences, such as US tariffs and China’s economic retaliations as it did for hosting a US Terminal High Altitude Area Defense antimissile system. When the two giants clash, South Korea will inevitably be caught in the crossfire.

A larger issue is the effect of US-China trade war upon North Korean threats. If conflicts between Washington and Beijing worsen, the US-North Korea summit set for May could falter.

China, a close ally of North Korea, has so far joined forces in imposing UN sanctions on the North. A trade war is a war, too. Should the sanctions crack, with China somehow opening a backdoor for trade with Pyongyang, dialogue with North Korea will likely become pointless.

The government in Seoul clearly needs a sensible way to defend national interests from a tug of war between the US and China.

The Moon Jae-in administration takes the view that the national security is one thing and economy is another. Moon asked the government to respond to trade issues “confidently and resolutely,” but the request rings hollow, given the lack of means and power to settle them in Seoul’s favor, and rather makes it harder to make proper responses.

If a trade war expands into a Cold War, South Korea will be in for difficulties not only in trade but also in security. Dependence on the US for security and on China for exports will no longer work.

If the nation doesn’t play all its cards to minimize the impact of a US-China trade war, it will risk falling into a serious crisis.

A nationwide response system should be established. The government must draw up comprehensive strategies, including a plan for the worst-case scenario.

It ought to step up monitoring of the relations between the US and China, and proactive measures on trade issues are urgent. In the long term, efforts should be accelerated to diversify export markets.

(This article originally appeared in the Korea Herald)



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About the Author: ANN’s Board member Mr Zaffar Abbas, Editor of Pakistan’s Dawn has won the 2019 Gwen Ifill Press Freedom Award from the Committee to Protest Journalists.

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