When Trump was elected, Korea was ruined… What is our response strategy?

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“The trade paradigm is changing in a direction we have never seen before. It is very unreasonable to think that you can persuade the United States with the logic that ‘this is a violation of the Korea-US Free Trade Agreement (FTA)’ or ‘this is a violation of the World Trade Organization (WTO) agreement.’ “It’s just one thought.” (Myunghee Yoo, former head of the Trade Negotiation Headquarters of the Ministry of Trade, Industry and Energy)

“I think the fact that President-elect Donald Trump said during his first summit phone call with President Yoon Seok-yeol, ‘The shipbuilding industry needs cooperation and help from Korea’ gives a hint.” (Former Trade Minister Yeo Han-gu)

When former President Donald Trump defeated expectations and won a landslide victory in the US presidential election, the results of which were announced on the 7th, many people in Korea responded that they were ‘screwed’. This is because of the experience of being under tremendous trade pressure during the first Trump administration.

Like it or not, ‘Trump 2.0’ has become a reality, and our country must overcome the trade pressure from the United States. Normally, it involves setting the rules of trade. Representative examples include multilateral trade systems such as the WTO and bilateral trade systems such as FTA.

Trade is a very important aspect for our country, which makes a living through exports. Fortunately, there are several trade experts in our country who have protected Korea’s interests against the trade pressure of previous US governments, including Trump.

The heads of the Trade Negotiation Headquarters of the Ministry of Trade, Industry and Energy are the main characters. These are commanders who lead our country’s trade negotiations. Trump 2.0 is attracting more attention than anyone else as unprecedented uncertainty looms over the global economy.

The Korea Economic Daily conducted a series of interviews with key division heads immediately after Trump was elected. On the 11th, there was an event where former heads of the Trade Negotiation Headquarters gathered together to exchange opinions.

Combining the Korea Economic Daily’s relay interview and the roundtable discussion on the 11th, former heads of the Trade Negotiation Headquarters point out the four major policy changes of the second Trump administration, Trump’s four major negotiation strategies and styles, and Korea’s four response strategies. Here’s a brief summary.

If trade was an auxiliary tool to industrial policy during the four years of the Joe Biden administration, the Trump administration is expected to bring trade to the forefront as a core policy. Robert Lighthizer, who was the head of the United States Trade Representative (USRT) in the first Trump administration, called their policy a ‘worker focused trade policy.’

The idea is to place more importance on the American working class than on improving corporate profits. In this respect, the policies that the United States has consistently pushed for the past eight years, regardless of the ruling party, such as nationalism, protectionism, rebuilding the manufacturing industry, and strengthening checks on China, are expected to continue.

This is the area I am most interested in. The Trump administration is predicting the introduction of a universal tariff of 10 to 20 percent on all imported products. Since it is an overly unilateral policy, many people are saying, ‘Even Trump would do that?’

Former Director Yeo Han-gu believes that the possibility of introducing a universal tariff is high enough to say, “The question ‘Should we introduce a universal tariff?’ is meaningless.” If you meet officials from Trump’s first term, they will tell you that “this is not a bluff as most of the promises made during the first term of administration were implemented.” There is also a precedent in 1971 when then-President Richard Nixon imposed a 10% tariff on all imports.

Because of our experience during Trump’s first term, there is considerable concern in Korea that the United States may be requesting to renegotiate the Korea-U.S. FTA again. Former heads of trade negotiations unanimously say that it is unlikely that ‘Korea-US FTA renegotiation’ will become a top priority.

During Trump’s first term, he attacked the Korea-US FTA every time he campaigned, calling it “a terrible agreement created by Hillary Clinton,” but this is because he never once mentioned the Korea-US FTA during this campaign.

Former Director Yeo Han-gu said, “If universal tariffs are a ‘net’ that will solve the problems facing Korea, China, and Mexico all at once, individual FTA negotiations are a ‘fishing rod’ that solves problems one by one.” He added, “The United States, which has a lot of pending issues with many countries, has procedures such as ratification by the Korean National Assembly. “We will pursue a quick universal tariff first rather than a lengthy FTA renegotiation,” he predicted.

Former heads of headquarters agree that it is politically difficult to completely abolish the Inflation Reduction Act (IRA) and the Semiconductor Act (Chips Act), as Trump has declared. This is because “most of the areas where huge investments have been made thanks to the two bills are Republican-leaning areas.”

The ‘Musk factor’ cannot be ignored either. “As long as Tesla CEO Elon Musk, who played a major role in Trump’s election, is present, the ‘Musk factor’ will inevitably be considered in related industries such as electric vehicles and batteries.”

How should we respond to the changes in the second Trump administration? If you know your enemy and yourself, you will win every battle. First, we look at Trump’s negotiation strategy and style.

It is said that the first question President-elect Trump asks when preparing for a summit with another country is “What is the size of the trade deficit between this country and the United States?” The most important criterion for evaluating a partner country, regardless of whether it is an ally or an FTA partner, is the trade balance.

Trump’s favorite tool to correct America’s trade imbalance is tariffs. Tariffs are a means of reducing the U.S. trade deficit and a tool to bring other countries to the negotiating table.

It was the Trump administration that brought out Article 232 of the Trade Expansion Act (a plan to impose a 25% tariff on all imported steel products), which was last used in 1986 during the Cold War, in 2017. It was such an unexpected card that former Director Yoo Myung-hee recalled, “It was the first time I had heard of it while working as a trade bureaucrat.”

In addition, putting pressure on the other country by linking unpredictable issues is also a Trump-style negotiation strategy. During trade negotiations, they suddenly link the issue of illegal immigration or demand measures against drugs.

A characteristic of Trump’s negotiation strategy is that when differences of opinion arise, time-consuming strategies such as ‘Let’s create a working group and talk about it’ or ‘Let’s review it’ do not work. They put pressure on the other party by saying, ‘If you don’t give us an answer by the end of this month, we will take immediate retaliatory action.’

Trump induces individual negotiations with specific countries or companies through a strategy similar to the ‘Prisoner’s Dilemma’. For example, after imposing a blanket tariff, some countries are presented with conditions such as ‘tariffs will be lowered or exempted if they come up with a negotiated plan within two months’ to try to take sides with other countries.

It is a method of destroying opposing countries one by one while preventing them from forming alliances with each other. So how should our country respond?

The advice of former heads of the Trade Negotiation Headquarters is that if Trump is quick to reach a resolution, we have no choice but to confront him quickly and quickly. In 2017, Korea responded to the United States’ request for renegotiation as quickly as possible and concluded the Korea-US FTA revision agreement in three months.

This was the result of deciding that it would be better to give the Trump administration a ‘small victory’ and get practical before the midterm elections. In the time-consuming United States-Canada-Mexico Agreement (USMCA), Mexico accepted a much less favorable negotiation result.

The Financial Times evaluated Korea as the country that invested the most in the United States and created the most jobs last year. Accordingly, the strategy of persuading the United States is effective, saying, “Korea is actively responding to the U.S. industrial policy and shifting its supply chain and trade from China to the U.S., but imposing tariffs will lose that momentum and run counter to America’s geopolitical interests.” do.

I mentioned that Trump often uses strategies that link unexpected cards. We also need a linking strategy that breaks the mold. Rather than narrowing the scope of trade, there is a need to link various issues such as automobile and defense industry cooperation.

Former Director Yeo Han-gu said, “It is difficult to rebuild the U.S. manufacturing industry without Korean companies such as semiconductors, batteries, and electric vehicles,” and added, “We can create a ‘win-win cooperation package’ in areas such as shipbuilding, military industry, nuclear energy, and other fields.”

Former Director Yoo, who served as the chief representative of Korea in the renegotiation of the Korea-US FTA during Trump’s first term, said, “During Trump’s first term, a quick response was possible thanks to companies first detecting and informing the government that the US was considering scrapping the Korea-US FTA. “I did,” he said. The advice is, “If the public and private sectors join forces and negotiate quickly, demands such as universal tariff exemption can be reflected.”

Researchers at the Peterson Institute for International Economics, where former Director Yeo Han-koo is a senior researcher, call today’s United States, which is building tariff walls, ‘Fortress America.’ This is an expression that describes a situation where it is no longer difficult for Chinese products to enter the U.S. market, except for low-value products such as T-shirts and shoes.

Director Yeo said, “If Korean companies can overcome Fortress America’s tariff barrier, it will also be an opportunity to increase their market share in the U.S. without competing with Chinese companies.” He added, “We are pursuing various measures such as mergers and acquisitions (M&A) of local companies and the establishment of joint ventures (JVs).” “You have to take advantage of it,” he advised.

Reporter Jeong Young-hyo hugh@hankyung.com