[Insight & Opinion] Trump's Mad Tariffs and the Art of the Deal

U.S. Seeks Negotiating Leverage Through Fear
Geopolitical Tariffs Leave Korea's Competitiveness Unchanged
Flexible Cost-Benefit Strategy Needed for the Medium and Long Term

The looming threat of tariffs appears set to engulf the entire country. U.S. President Donald Trump has sent a letter to President Lee Jaemyung stating, "Starting August 1, a 25% reciprocal tariff will be imposed on all Korean products." There are already predictions that the Korean economy will suffer a significant shock. This article examines President Trump's calculations and Korea's possible responses.

In his book "The Art of the Deal" (1987), Trump wrote, "Sometimes you have to be rough when the situation calls for it." He also advised, as his fifth principle, to "use leverage." He is now acting exactly as he described in his book. Like a madman whose next move is unpredictable, he announces outrageous tariffs in a heavy-handed manner and uses the fear of his counterparts as leverage.

This strategy has already proven effective once. In February, Trump met with Ukrainian President Volodymyr Zelensky. He mocked Zelensky's military attire by asking, "Don't you have a suit?" and snapped, "That's rude," then threatened that a ceasefire with Russia might be forthcoming. In the end, Zelensky signed the "U.S.-Ukraine Minerals Agreement" that Trump wanted. Recently, the White House has posted all the tariff letters sent to various countries on social media. This, too, appears intended to maximize fear in other countries and thereby maximize their concessions.

After notifying countries of tariffs in April, Trump applied a 10% provisional tariff through July. There are now expectations that he may indefinitely extend the grace period or sharply lower the tariff rate. This is known as the "Trump bluff" theory. However, unless this U.S. president intends to go down in history alongside Pinocchio and the boy who cried wolf as a legendary braggart, it seems unlikely that he will simply let this matter fade away. As August approaches, the argument that this is just a bluff is weakening, while fear is likely to intensify.

The tariff rates set by Trump reflect "U.S.-centric geopolitics." The "transatlantic kin" United Kingdom received a mere 10% tariff. In contrast, the European Union and neighboring Mexico were each hit with 30%. Japan, after receiving a 24% tariff in April and negotiating diligently with the U.S., found itself in shock when the rate rose to 25% in July. Even the mild-mannered Prime Minister Shigeru Ishiba lamented, "How can we tolerate being looked down upon like this?" The justification for the tariff hikes is trade imbalance, yet while Canada, the ninth-largest surplus country with the U.S., was hit with a 35% tariff, Korea, the sixth-largest, has maintained a 25% rate (in both April and July). While this tariff bomb is certainly disastrous, it does not single out Korea for harsher treatment.

Since the tariff rates on exports to the U.S. have soared equally across major countries, Korea's international competitiveness remains unchanged. It is actually advantageous that the tariff rate imposed on China, a competitor, is much higher. Therefore, Korea should keep in mind the realistic goal of "receiving a final tariff rate similar to those of Japan and other major countries." For countries with relatively small trade surpluses with the U.S., Trump has set the average tariff rate at 15-20%. Even with successful negotiations, it will not be easy to lower the rate by more than 5-10%.

Furthermore, in order to lower the tariff rate, Korea will have to make concessions in areas such as beef, rice, apples, automobiles, big tech, Alaska, and defense costs. The cost-benefit analysis of these trade-offs is as complex as a semiconductor circuit. Korea must also consider the medium- and long-term outlook. If the skyrocketing tariffs lead to higher manufacturing costs and inflation within the U.S., the situation could change.

While Korea should aim to lower the tariff rate, it would be unwise to respond emotionally, as one senior ruling party official put it, "with not a shred of courtesy..." Approaching negotiations with excessive desperation is also not advisable. Doing so could risk bringing up security issues such as the transfer of wartime operational control. Instead, Korea needs to show some flexibility in acknowledging the U.S. trade deficit with Korea. In "The Art of the Deal," Trump wrote, "If you enjoy the deal, you'll succeed in the deal."

Professor Heo Manseop, Kangnung National University