[Urgent Trade Policy Diagnosis] Political Vacuum, Trade Has No Power

Yoon's Suspension and Acting Authority Make Normal Negotiations Practically Impossible
Trump Also Realizes 'Korea Passing'
Need for Economic and Diplomatic Control Tower

With President Yoon Suk-yeol's suspension from office, the Republic of Korea has entered a presidential acting system under Prime Minister Han Duck-soo, casting a dark cloud over the nation as it navigates the international stage. Trade experts generally express concern that an acting presidential system weakens negotiating power on the global stage, clearly limiting the protection of national interests. Especially with less than a month remaining until the launch of the second Trump administration, there is a consensus on the urgent need to establish a control tower to coordinate and respond to pressing issues such as defense cost-sharing, renegotiation of the Free Trade Agreement (FTA), and tariffs.

Professor Kang In-soo of the Department of Economics at Sookmyung Women's University said in a phone interview with Asia Economy on the 18th, "When South Korea, under an acting presidential system, makes requests or demands to the United States, the likelihood of the U.S. accepting them significantly decreases," adding, "Since it is uncertain when Korea's negotiation representative might change, it is difficult to push through our position."

There is particular concern that the spread of domestic-first policies will weaken South Korea's trade capabilities under the acting presidential system. Professor Emeritus Kim Kyung-soo of the Department of Global Economics at Sungkyunkwan University assessed the current situation as "precious time slipping away." He stated, "If international norms were still functioning as before, negotiations could proceed under these rules even with an acting presidential system, but now organizations like the World Trade Organization (WTO) are mere shells," and pointed out, "Trade requires strong leadership to coordinate and persuade domestic interests, which then forms the basis for negotiations with other countries, but the current acting presidential system makes it difficult to actively pursue trade policies."

The political vacuum in Korea is making 'Korea passing' a reality. On the 16th (local time), U.S. President-elect Donald Trump held a press conference mentioning China, Russia, Japan, and even North Korea, but made no mention of South Korea. This situation could act as a negative factor for South Korea, which faces numerous trade issues requiring coordination with the U.S., such as increased defense cost-sharing and FTA revisions. Time is also tight.

Senior Research Fellow Kim Young-gwi of the Korea Institute for International Economic Policy (KIEP) said, "During the impeachment phase of the Park Geun-hye administration, the first Trump administration began, and at that time, it was probably difficult for him to assess what he could do," adding, "Now, with experience and verified personnel around him, trade pressure is likely to come much faster than before." However, there is also a more positive analysis compared to that time. Senior Research Fellow Song Young-kwan of the Korea Development Institute (KDI) said, "During the first Trump administration, Korea had little means to respond and just endured," but added, "Now, since Trump is seeking cooperation from us in the shipbuilding sector, there may not be major disruptions."

Experts foresee that the U.S. may apply strong trade pressure particularly in the automobile sector. Senior Research Fellow Kim explained, "President-elect Trump emphasized the trade deficit issue a lot, but Korea's automobile exports to the U.S. have a surplus exceeding 70%," and said, "He is likely to raise concerns that Korea is making too much profit compared to when he was in office."

Lee Hang-gu, Director of the Korea Automotive Technology Institute, also warned, "The Trump administration's tariff policies could cause significant damage to the automobile industry." He analyzed, "There is a facility for 400,000 vehicles in Mexico alone, so we need to see if it operates well," and added, "The average price of cars sold in the U.S. is $45,000, which is higher than the U.S. median income, so even a 2% tariff increase would raise prices by $900, causing sensitive reactions from consumers."

On the 27th, cars are waiting to be shipped at Pyeongtaek Port as seen from the sky. [Aerial shooting cooperation = Seoul Metropolitan Police Agency Aviation Unit, Pilots: Inspector Shin Seung-ho - Inspector Park Ji-hwan, Crew: Inspector Park Sang-jin] Photo by Kang Jin-hyung aymsdream@

There is also concern that subsidies under the Inflation Reduction Act (IRA) and the CHIPS and Science Act (CSA), promoted by the Biden administration, may be suspended. The Biden administration is directly providing $39 billion in semiconductor subsidies for establishing semiconductor factories in the U.S., and through the IRA and CSA, it has significantly supported semiconductors and electric vehicles to encourage manufacturing bases to be established in the U.S.

Professor Kang said, "There has been no final sign that all the originally promised subsidies will be fully granted to Korean companies that have received or will receive direct subsidies in the semiconductor and secondary battery sectors," expressing concern, "It would be good if this is resolved during President Biden's term, but given the uncertain domestic political situation, it is unclear whether there is strong momentum to demand this." He added, "There is a risk that Korea's production base in semiconductors and automobiles could accelerate moving to the U.S.," and predicted, "During the first Trump administration's FTA renegotiation, the 25% tariff on pickup trucks, originally set to expire in 2021, was extended for 20 years, but in the second renegotiation, this could be demanded even more strongly."

Experts emphasize that since trade is a negotiation between two countries, it is urgent for South Korea to make policy decisions on what to give and what to receive from the U.S. Professor Heo Yoon of the Graduate School of International Studies at Sogang University said, "South Korea needs to balance interests with the U.S. in a big picture that includes defense cost-sharing, diplomacy, security, investment, and trade, but there is no active entity pushing this forward," adding, "At the national leadership level, coordination and adjustment among ministries on various issues are limited."

Professor Heo also expressed concern that the trilateral economic and security cooperation system among South Korea, the U.S., and Japan might weaken. He diagnosed, "Until now, President Biden, President Yoon, and former Japanese Prime Minister Kishida Fumio promoted the South Korea-U.S.-Japan cooperation, but with President Yoon's impeachment, there is no one to play the central role," and said, "The trilateral cooperation system is creaking."

Experts advise urgently establishing a control tower to oversee trade policy and strengthening outreach at the public-private level. Professor Kang argued, "It is a foregone conclusion that President-elect Trump will take office on January 20 next year, and once policies are established, it is difficult to overturn them, so the Deputy Prime Minister for Economy should take the lead in creating dialogue channels with personnel entering the second Trump administration and prepare negotiations," and insisted, "Domestically, we must firmly establish our negotiation cards within this year and meet with the U.S. side."

Senior Research Fellow Song advised leveraging South Korea's strengths as negotiation cards with the U.S. He said, "The U.S. shipbuilding industry has declined, but there are security concerns about Chinese-made ships, so Korea's shipbuilding industry could experience a second renaissance," and added, "It is necessary to devise a strategy utilizing this." Director Lee called for meticulous countermeasures. He said, "The automobile industry is facing declining sales, and the plans announced by vehicle companies are not practically working well," and explained, "Even if large companies want to directly manage supply chains, they face difficulties due to the Fair Trade Act, so the government needs to look into and resolve such issues in more detail."