[Interview] "Trump's Second Term Biggest Risk is Cars... Joining G7 Plus as an Opportunity for Shipbuilding and Defense Cooperation"

[Trump 2.0 US Expert Interview]②
Yeo Han-gu, Former Chief Negotiator for Trade
US May Raise Auto Tariff from 2.5% to 25%
60% Tariffs on China Could Disrupt Global Trade
Opportunities for Shipbuilding and Nuclear Cooperation... Pursuing G7 Plus Membership

"The biggest risk for Korea under Trump's second term is the automobile sector. However, amid the intense US-China competition, Korea should also seek opportunities by strengthening cooperation with the US in shipbuilding and defense industries, and by securing US support for joining the 'G7 (Group of Seven) Plus'."

Yeo Han-gu, former head of the Trade Negotiation Headquarters (currently a senior fellow at the Peterson Institute for International Economics (PIIE)), stated this in an interview with Asia Economy on the 10th (local time). He said, "For Korea, the automobile sector, which has a large trade surplus with the US, remains the biggest concern in the second term following the first term of Trump."

He anticipated that Donald Trump, having won the presidential election decisively and with the Republican Party controlling both the House and Senate, would quickly pressure trading partners through tariffs immediately after taking office. Yeo said, "During Trump's first term, steel tariffs were significantly increased under Section 232 of the Trade Expansion Act citing national security threats, and this time, similar measures could be applied to automobiles." He predicted, "The US could raise the tariff rate on passenger cars from the current 2.5% to 25%, the level applied to trucks, citing national security threats." He advised, "The government should prioritize establishing countermeasures for the automobile sector, and companies should flexibly manage the balance between exports and local production in response to changes in the trade environment."

Jeoh Han-gu, former Chief Negotiator for Trade (currently Senior Fellow at the Peterson Institute for International Economics (PIIE))

He viewed the aftershocks of imposing a 60% tariff on China, rather than the 10% universal tariff promised by Trump, as having a greater impact on Korea and other markets. Yeo said, "Since China did not implement the US-China Phase One trade agreement reached during Trump's first term, Trump’s second term will immediately impose a 60% tariff on Chinese goods." He added, "With US exports blocked, China will dump its oversupply at bargain prices into other markets, causing industrial damage in Korea, the European Union (EU), and others. This will lead to anti-dumping tariffs against China by these countries and retaliatory tariffs from China, disrupting the global trade market." Under the Phase One trade agreement, China committed to purchasing an additional $200 billion worth of US products and services but failed to fulfill this promise. According to the agreement, the US can impose retaliatory tariffs on China for non-compliance.

He assessed that the possibility of repealing the Inflation Reduction Act (IRA) and the CHIPS and Science Act (CSA), which Trump pledged to abolish during his presidential campaign, is low. He said, "Both the IRA and the semiconductor law benefit many Republican constituencies, so complete repeal during Trump's second term is unlikely." However, he noted, "Given Trump's negotiation style, he may demand additional concessions from companies, such as increased investment, in exchange for maintaining subsidy benefits."

He also predicted that Trump's second term might strengthen monitoring of currency manipulation under a weak dollar policy aimed at reducing trade deficits, and might pursue multilateral negotiations for dollar devaluation, possibly a 'Second Plaza Accord.'

Yeo suggested that Korea should use Trump's second term as an opportunity to expand its role amid the US-China hegemonic competition and the US manufacturing revival.

He said, "Trump mentioning cooperation with Korea in shipbuilding immediately after his election is an important hint," adding, "As a manufacturing powerhouse, Korea can play a significant role as a partner supporting the US in its hegemonic competition with China." He continued, "While strengthening Korea-US cooperation in the shipbuilding and defense sectors, which are needed and have growth potential in the US, Korea should also demand regulatory relaxations such as amendments to the Jones Act (which requires all ships and warships to be built in the US) to promote Korean shipbuilding investment in the US." He noted, "The US grants 'Buy America' exceptions to Canada, Australia, and the UK, so Korea should also seek such exceptions and secure all possible benefits from the US." He argued that Korea should expand entry into the third nuclear power market through Korea-US nuclear cooperation and discuss solutions to the currently prohibited issue of 'spent nuclear fuel reprocessing' under the Korea-US nuclear agreement during this process.

He emphasized the need to actively pursue joining the G7 Plus during Trump's second term. Yeo said, "During Trump's first term, there was an attempt to expand the G7 to include Korea, Australia, and India, creating a 'G10' (Group of Ten), but discussions were halted due to deteriorated Korea-Japan relations and COVID-19." He stressed, "Now that Korea-Japan relations have improved, this is an opportunity to secure strong US support and push for G7 Plus membership."