[Interview] "Trump Demands Concessions in Negotiations with 'Tariff Threat'... May Use Emergency Economic Law Card"

[Trump Risk②]
Interview with Former Trade Negotiations Chief Yeohangu

Trade Policy Outlook for Trump’s Second Term
Tariffs to Rise Regardless of FTA and WTO Rules
Tariff Threats Used as Negotiation Leverage
Possible IRA Electric Vehicle Subsidy Removal and Auto Tariff Increase
US-China Accelerate Advanced Technology Decoupling

Yeo Han-gu, former Chief Negotiator of Trade at the Ministry of Trade, Industry and Energy, is being interviewed by Asia Economy on the 11th (local time) at the Peterson Institute for International Economics (PIIE) office in Washington D.C. Washington D.C. Photo by Kwon Haeyoung

"If the second Trump administration becomes a reality, as promised, it will first pull out the tariff increase card. It is highly likely that all means, including the International Emergency Economic Powers Act (IEEPA), will be used to raise tariffs and leverage negotiations to obtain concessions from trading partners."

Former Director General of Trade Negotiations at the Ministry of Trade, Industry and Energy, Yeo Han-gu, said in an interview on the 11th (local time) at the Peterson Institute for International Economics (PIIE) in Washington D.C., "Former President Donald Trump will raise tariffs first without considering violations of Free Trade Agreements (FTA) or World Trade Organization (WTO) rules."

He predicted that if Trump’s second term begins, rather than targeting Korea first, there is a possibility that Korean companies could be hit by raising tariffs on automobiles such as electric vehicles.

He also expected that U.S.-China decoupling would deepen more than under the Biden administration. Former Director Yeo emphasized, "Just as the U.S. has separated supply chains from China in the electric vehicle battery sector through the Inflation Reduction Act (IRA), it is highly likely that regulations will be strengthened to exclude China from advanced technology supply chains, so we must prepare accordingly."

With former President Trump confirmed as the Republican candidate for the U.S. presidential election this November, and announcing much stronger protectionism than during his first term, concerns about the Trump risk are spreading. We met with former Director Yeo, an international trade expert, to hear his outlook on trade policy and countermeasures if Trump’s second term begins. Former Director Yeo, who served as Commercial Attach? at the Korean Embassy in Washington during the Trump administration and handled major trade issues including the renegotiation of the Korea-U.S. FTA, is currently a senior fellow at PIIE. The following is a Q&A with former Director Yeo.

-Trade policy risks are increasing ahead of the U.S. presidential election.

▲Whether it is President Joe Biden or former President Trump, the basic philosophy of ‘America First’ remains the same. The top priority is to check China, the greatest hegemonic competitor in U.S. history, followed by the revival of manufacturing. Both Biden and Trump share the view that manufacturing must be restored as the white middle class has declined due to the loss of the manufacturing base in the Midwest. The IRA, a representative policy of Bidenomics, is also part of manufacturing revival. Additionally, former President Trump takes the trade deficit issue very seriously. The three pillars that underpin U.S., especially Trump’s trade policy, are China containment, manufacturing revival, and trade deficit resolution.

-Former President Trump has stated he will impose a universal 10% tariff on all countries and a 60%+ alpha (α) tariff on China.

▲China is the biggest target of former President Trump. Over the past 24 years, the U.S. has accumulated a trade deficit with China totaling $17 trillion (approximately 22,750 trillion KRW). To reduce the trade deficit with China, Trump has said he would impose tariffs exceeding 60% on China. There are two possibilities: actually imposing tariffs over 60%, or using the threat of such tariffs as leverage to obtain concessions in negotiations. Another option is to change the annual review of China’s Most Favored Nation (MFN) status. When MFN applies, tariffs on China average about 3%, but if this status is revoked, tariffs could jump to 30-40%. Since 2000, the U.S. has granted China Permanent Normal Trade Relations (PNTR) status aligned with China’s WTO accession and applied MFN, but before that, Congress reviewed MFN status annually.

It is also quite possible to implement a uniform additional 10 percentage point universal tariff on all countries. Trump imposes tariffs first regardless of whether a country has an FTA. Then, if a country wants exceptions, it must come to the negotiating table and offer concessions. This is Trump’s negotiation technique?using tariffs to achieve his goals one by one.

-Some experts argue that tariff increases violate FTA or WTO rules. Is Trump’s tariff pledge feasible?

▲While trade authority lies with Congress, the president can raise tariffs at his discretion without congressional approval for national security or urgent economic crises. For example, in 1971, President Richard Nixon declared an emergency economic crisis based on the Trading with the Enemy Act of 1917 due to worsening trade deficits. He then abandoned the gold standard and raised tariffs on all imports by 10 percentage points. Negotiations began with countries like Japan, which had large trade surpluses with the U.S., resulting in a 17% appreciation of the yen. West Germany also revalued the mark. The U.S. later withdrew the 10 percentage point tariff increase.

In 2019, when immigration surged from Mexico to the U.S., Trump declared a national emergency and imposed an additional 5% tariff on all Mexican imports based on IEEPA. Considering such precedents, if Trump’s second term materializes, tariff increases are likely. It is preferable to resolve issues through sophisticated political, diplomatic, and trade negotiations.

-Is there a possibility of introducing other protectionist measures besides tariffs?

▲Recently, the U.S. Senate introduced the Foreign Pollution Fee Act, similar to the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM). Unlike the EU, which operates an emissions trading system regionally, the U.S. currently has no domestic carbon tax system but plans to impose taxes on foreign imports. This could become another tariff barrier to protect U.S. companies. Discussions may advance around the 2026 implementation of the EU CBAM, and Trump may actively adopt such measures.

-What impact is expected on Korea if former President Trump returns to power? He also pledged to repeal the IRA.

▲If the Republican Party does not control both the executive branch and Congress, it is realistically difficult to repeal or completely overturn the IRA. The electric vehicle battery sector included in the IRA is a future technology competing with China, so it cannot be completely abandoned. However, since Trump is negative on climate action, he may render the IRA’s electric vehicle subsidy of up to $7,500 ineffective through Treasury Department sub-regulations rather than repealing the law.

There is also a possibility of raising tariffs on automobiles including electric vehicles. Some White House officials during Trump’s first term said that while they imposed a 25% tariff on steel, they should have also implemented the discussed automobile tariff increases. As Trump attempts to address the large trade deficit in automobiles, Korea could be dragged into this as well.

-If U.S.-China relations worsen, Korea is expected to be caught in the middle and suffer damage.

▲The U.S. will accelerate decoupling from China in advanced technology sectors such as semiconductors, artificial intelligence (AI), and biotechnology. Even using Chinese components, critical minerals, or raw materials in products exported to the U.S. could be subject to U.S. regulations. While the IRA currently excludes Chinese components and minerals only in electric vehicle batteries, regulations to separate U.S.-China supply chains in other advanced technology sectors are likely to expand. We must prepare for this.

-How should Korea respond to the ‘Trump risk’?

▲Companies should consider the Trump risk in their global production strategies starting now. This could mean increasing production in the U.S. or third countries. The government should expand lobbying efforts toward the U.S. like the Japanese government and respond calmly and steadily based on experience from Trump’s first term. While negotiating with the U.S., Korea should also strengthen cooperation with multiple countries within the multilateral system, which Trump tends to disregard. Even if Trump abolishes the Indo-Pacific Economic Framework (IPEF), like-minded middle-power countries can maintain continuous and constructive cooperation on supply chains, climate response, and other issues.

◆About Former Director General Yeo Han-gu…

▲Passed the 36th Administrative Examination

▲Senior Investment Policy Officer at the International Finance Corporation (IFC) under the World Bank (WB)

▲Commercial Attach? at the Korean Embassy in Washington D.C.

▲Director General of Trade Negotiations at the Ministry of Trade, Industry and Energy

▲Senior Fellow at the Peterson Institute for International Economics (PIIE)