[Insight & Opinion] In an Era of Uncertainty, Trump's Victory and the Korean Economy

Renegotiation of KORUS FTA Now a Given
Balancing Relations with China Remains a Major Challenge
Flexible Responses Needed from Government and Corporations

Trump, a risk-taker who targeted traditionally politically indifferent young men and South American Hispanic immigrants, succeeded in winning back the entire Rust Belt and secured re-election. As President Trump's second term begins amid mixed concerns and expectations, we must prepare for the future to survive economic uncertainties. Trump's "America First" protectionist stance poses both barriers and opportunities for the Korean economy and future strategies.

First, Korean companies will face burdens from high trade barriers such as tariffs, and demands to expand production through building factories in the U.S. will intensify. Maintaining a balanced relationship with China remains one of the most challenging issues for Korea.

Korean companies should first accept as a given that Trump will renegotiate the Korea-U.S. Free Trade Agreement (KORUS FTA) and respond accordingly. During his previous term, Trump already imposed restrictions on Korean steel exports and pressured Korean automobile manufacturers to increase production in the U.S. Our dilemma is that while expanding local production is necessary to avoid high tariffs and additional regulations, such policies increase production costs and cause inefficiencies in the supply chain, potentially weakening the competitiveness of Korean products in the U.S. market.

The same applies to electronics companies like Samsung and LG. Although they already hold significant market shares in the U.S., if they face the need to build additional factories in the U.S. due to the Trump administration's demands, increased production costs could lead to higher consumer prices and consequently reduce demand within the U.S.

Trump's tough stance on China also presents another challenge for us. Given Korea's close economic ties with both the U.S. and China, escalating U.S.-China trade tensions could pressure Korean high-tech companies to comply with U.S. standards, making access to the Chinese market?a major sales destination?more difficult. Furthermore, if the U.S. and China require different technical standards, Korean companies could find themselves in a difficult position, unable to satisfy either side, which would reduce operational flexibility and competitiveness. Therefore, companies like Samsung and SK Hynix, which produce semiconductors, need to take proactive measures such as diversifying their supply chains to meet the demands of both countries.

Additionally, Trump has consistently called for increased South Korean defense spending. For the Korean government, which has been on a path of fiscal deterioration due to revenue shortfalls over the past few years, increased defense contributions could inevitably lead to cuts in investments in future growth industries such as renewable energy, digital infrastructure, and healthcare services unless additional funding sources are secured. Given Korea's ongoing population aging and economic growth slowdown, maintaining adequate social welfare and necessary economic investments may become difficult. Preemptive government measures are needed, including diversifying tax revenues, tax reform, increasing income through appropriate tax adjustments, and reducing inefficient fiscal expenditures.

These changes we face are both challenges and opportunities for corporate and governmental renewal. During Trump's term, Korea will enter an era requiring strategic balance and economic adaptability. In particular, major Korean companies should adopt flexible strategies to expand their presence in the U.S. while maintaining their position in China. The government must act not as a bystander but as an active economic participant, demonstrating wisdom in balancing close cooperation with the U.S. and economic risks with China to support businesses.

Although our future choices involve many challenges, if approached carefully, Korea can maintain stability and seek growth opportunities amid global economic changes. In this era of uncertainty, to sustain and further grow Korea's economic power, it is essential to gather wisdom from all sectors and respond flexibly to Trump's trade and defense policies.

Professor Kim Gyu-il, Michigan State University