[US Presidential Election D-50 Trade Forum] "To Negotiate Well with the US, Must Have Many Cards to Play... Also Consider Measures to Maintain Cost Competitiveness"

Hyundai Motor, POSCO, and Four Trade Experts Roundtable
"Balanced, Reciprocal, and Fair Trade if Trump Wins"
"ESG Risk Response if Harris Wins"

◆Society = Choi Il-gwon, Head of Industrial IT Department

◆Attendees = Do Han-ui, Head of POSCO Trade and Commerce Office; Jang Jae-ryang, Executive Director of Hyundai Motor Group Global Policy Strategy Office; Jo Seong-dae, Head of Trade Research Office at Korea International Trade Association; Heo Yoon, Professor at Sogang University Graduate School of International Studies (in alphabetical order)

The U.S. presidential election is less than 50 days away. Trade policies may change depending on the election outcome. The previous Donald Trump administration used the 'Trade Expansion Act' card. Will a new trade measure card emerge?

There are several laws that Trump could use if re-elected besides Section 232 of the Trade Expansion Act. Section 122 of the Trade Act grants the president authority to impose tariffs in case of a serious international balance of payments deficit. Section 301 of the Trade Act allows for expanded measures to improve unfair trade practices. There is also the International Emergency Economic Powers Act (IEEPA), which authorizes the president to exercise powers to address abnormal and special threats when a national emergency is declared. Under Section 338 of the Tariff Act, the president can take countervailing measures against countries discriminating against the U.S. Although the likelihood is low, Trump is an unpredictable figure. The legal grounds he could use are in place.

Trump’s mention of a 'universal base tariff (10%)' seems to be based on reviewing tariff rates applicable under current laws to some extent.

Participants of the trade roundtable held on the 11th at Asia Media Tower in Jung-gu, Seoul, are engaged in conversation.
From the left: Seongdae Jo, Director of Trade Research at the Korea International Trade Association; Hanui Do, Head of Trade and Commerce at POSCO; Yoon Heo, Professor at Sogang University Graduate School of International Studies; Jaeryang Jang, Executive Director of Global Policy Strategy at Hyundai Motor Group.
[Photo by Dongju Yoon doso7@]

What trade pledge policies from the Trump and Kamala Harris camps should Korea pay close attention to?

Candidate Harris raises her voice on trade, human rights, labor conditions, climate change, renewable energy, and the risks of fossil fuels. If Harris is elected, ESG (Environmental, Social, and Governance) related measures will be significantly strengthened, and the U.S. and European Union (EU) will likely move in tandem. Trump has stated he pursues balanced trade, reciprocal trade, and fair trade. Balanced trade means imposing universal tariffs on countries causing trade deficits with the U.S., regardless of allies or friendly nations. Reciprocal trade means responding equally until bilateral trade balances are achieved. Fair trade means pressuring areas deemed unfair from the U.S. perspective. If Trump is elected, Korea must prepare to respond to his unilateral and bilateral pressures.

Will the U.S. Inflation Reduction Act (IRA) likely be maintained if Trump is elected?

Considering it is a Trump pledge, if the political landscape is established, there is a possibility that the entire law or parts of the IRA could be repealed. However, if the political conditions do not allow, attempts to weaken the IRA in the implementation phase are expected.

The IRA is unlikely to be repealed. Even if Trump wins the election, if the Democrats win either house of Congress, things may not go as Trump wishes. While the IRA may not be fully revised, administrative orders could remove climate change provisions, reduce benefits related to electric vehicles, and raise entry barriers to provide benefits only for parts and products sourced within the North American region. The policy direction is likely to favor Tesla.

The original IRA initiative by the U.S. government has weakened. Even if Harris is elected and the IRA is maintained, the U.S. will certainly reassess whether the IRA benefits its domestic industries. Building new supply chains and low-carbon policies involve cost issues. Costs have been offset by subsidies, but when subsidies are insufficient, a dilemma arises. Trade conflicts are inevitable. Companies must find the optimal combination to reduce costs. If policies block this, production costs rise. If only certain companies’ costs rise, that may be manageable, but if all companies’ costs rise, ultimately consumers bear the burden.

Tesla CEO Elon Musk said that tariffs are delaying the construction of the Mexico plant. How do you think the U.S. election risk will affect investment?

The U.S. will be interested in how to distinguish and sanction production elements involving China. For example, regarding origin rules, how sanctions can be strengthened on products coming from Mexico is key. If universal tariffs are imposed, companies with a high proportion of local North American production will benefit. However, regardless of the election outcome, demands for increased investment in the U.S. are likely to continue.

The Hyundai Motor Georgia plant is scheduled to start operations about a month before the election. There are also views that only hybrid vehicles can be produced. How is the group responding?

It has already been announced that hybrids will be introduced at the new Georgia plant. As shown in the first half of this year’s performance, Hyundai and Kia electric vehicles are doing well in the U.S. We will continue to develop electric vehicle technology and increase production. Electric vehicles need to be priced lower for mass adoption. Europe is also imposing tariffs to block Chinese electric vehicles. Additional measures beyond tariffs are likely to strengthen regulations further. The U.S. has completely blocked Chinese electric vehicles, starting with tariffs and blocking Chinese materials. Regarding blocking Chinese supplies, Europe and the U.S. will likely consider enhancing self-reliance and technological capabilities. Europe also seems to be considering selective cooperation. They need to improve competitiveness and lower product costs. We are closely monitoring these trends.

The U.S. has granted benefits when significant value-added occurs in countries with which it has free trade agreements (FTAs). Recently, ideas have emerged in the U.S. House China Task Force to exclude Chinese companies from benefit eligibility. The idea is to exclude products 'Made by China' rather than 'Made in China' from benefits.

This is not limited to China. Korean companies may also face pressure. If a second Trump administration comes in, it will emphasize balanced trade more than any other administration. All countries running surpluses against the U.S. must prepare for this.

Participants of the trade roundtable held on the 11th at Asia Media Tower in Jung-gu, Seoul, are engaged in conversation.
From the left, clockwise: Jang Jaeryang, Executive Director of Global Policy Strategy Office at Hyundai Motor Group; Do Hanui, Head of Trade and Commerce Office at POSCO; Jo Seongdae, Director of Trade Research Office at Korea International Trade Association; Heo Yoon, Professor at Sogang University Graduate School of International Studies.
[Photo by Dongju Yoon doso7@]

Should we expect a high possibility of renegotiating the Korea-U.S. FTA if Trump is elected?

The U.S. is changing origin rules related to Section 232 in the steel sector, focusing on crude steel. For example, where and how much value-added occurs and where materials are sourced cannot be controlled by the existing export-import HS code system alone. The U.S. requires countries like Mexico to manage the crude steel origin of imported materials to block indirect inflows from China.

Trump renegotiated the FTA before, yet car exports increased. How will you respond?

The increase in exports was due to a high exchange rate, increased purchasing power in the U.S., and Hyundai vehicles appealing to American consumers. Also, General Motors (GM) exports a significant portion of cars made in Korea to the U.S. However, this logic may not easily convince the U.S. The U.S. may demand something from the auto industry.

Steel has quota issues. Do you see this as a constant rather than a variable?

The Section 232 quota is now a fixed constant. We observed how the Biden Democratic administration would change Section 232 but it remained as is. Since it favors the U.S., it will likely continue. However, the U.S. will judge whether the intended effects of Section 232 are actually realized.

The acquisition of US Steel by Nippon Steel has effectively stalled. This also proves how closely steel is linked to national security. Does this weaken arguments for increasing overseas imports?

Steel products vary widely. We must consider whether products are substitutable and who would be harmed by enforcing Section 232. The reason Section 232 is maintained without harsher measures is that U.S. steel companies cannot adequately respond. The U.S. government providing subsidies indicates the domestic steel industry’s competitiveness is weak. If existing quotas are further reduced, U.S. manufacturing will be unable to procure the high-grade steel it needs.

The Korea International Trade Association (KITA) has consistently pointed out issues with Korean professional visas in the U.S. How do you see this issue progressing after the election?

Most Korean companies investing in the U.S., especially small and medium enterprises, face difficulties due to visa issues. Currently, only about a quarter of the needed visas are granted. Korea came to the U.S. to help and create a win-win situation, but this situation arises, so we must continue to persuade the U.S. Visa issues are legislative matters and must be discussed with the new Congress convening early next year.

Hyundai is increasing local production through U.S. investment. The people guiding local workers should be Korean. We consider visa issues very important. The current level is insufficient. Hyundai is expressing its opinions, and our government is actively raising this with the U.S. side.

Visa issues must be continuously appealed for the prompt normal operation of Korean-invested companies. POSCO partner factories have actually experienced this problem. If visa issues worsen, the U.S. will also struggle to find workers. U.S. labor costs have risen significantly as Americans seek jobs outside manufacturing.

Any requests you would like to make to our government?

In the U.S., everything is thoroughly negotiated. To negotiate well, you need to have many cards. You must create many logical arguments to have many cards. Communication with companies is important. We must also consider domestic industrial response plans. If large companies move overseas, the domestic industrial ecosystem will inevitably collapse. The government and companies must communicate on how to maintain the domestic industrial base.

Companies should boldly demand active negotiations with foreign governments and provide opinions on domestic law enactment and revision. There are many areas where the government can assist, such as research and development (R&D) support and digital ecosystem creation.

When meeting officials, even local governments are quite reluctant to provide subsidies. They ask whether it violates international norms. Not all subsidies cause problems. If the other party does not raise issues, there is no problem.

While the immediate direction of tariff policies is important, there are 'mega trends' such as technological advancement, artificial intelligence (AI) expansion, and developments in data and autonomous driving. Rule-making in these areas will progress mainly in the U.S. and EU, and companies and countries must cooperate well to strengthen national and industrial competitiveness in these fields.