"No Need to Choose Between the U.S. and China Right Now...Watch the EU's Decision" [Post-Globalization? New Order!] ⑥

How Will Trump-Style Tariffs Play Out?
The U.S. Introduces a New Principle of "Reciprocity"
Ideological Shifts Unlikely Even Under Democrats
A World Entering an Era of U.S.-China Power Sharing
"We Should Adjust Our Position by Using Europe as

The United States has shaken the foundation of globalization-based free trade and the multilateral order by prioritizing tariffs and introducing a new principle called "reciprocity." In this context, some advise that rather than being swept up by the American perspective, we should examine the potential spread of reciprocity. The view is that if major countries such as the European Union (EU) and Japan do not follow the United States in adopting reciprocity, it should be seen not as the end of the era of globalization, but as an "American departure."

Jiman Su, Senior Research Fellow at the Korea Institute of Finance, recently told Asia Economy, "Declaring that we have entered a post-globalization, post-free trade era could end up closing off our own options for responding to the United States, so it is important to make a distinction." He added, "Free trade has not ended; it is just that the United States has left. We need to see whether this departure will be temporary or prolonged."

Su also cautioned against interpreting Korea’s position-caught between the United States and China-as requiring an extreme binary choice. He said, "One unnecessary discourse in Korea is the push to frame the Korea-US-China relationship as a triangle. There are 190 countries in the world, and every country except the United States and China is facing the same dilemma as we are." He continued, "Simply put, we should pay attention to what choice the EU makes. In the long run, which side the EU takes will determine the outcome."

Jiman Su, Senior Research Fellow at the Korea Institute of Finance, is being interviewed on the 14th of last month at the Korea Institute of Finance in Jung-gu, Seoul.

- The official formula of globalization is being shaken after the launch of the second Trump administration.

▲Because all changes are being led by the United States, we are also being swept up by the American perspective. If we only look at current developments, it is the United States that has departed from free trade. This does not mean the world of free trade has ended.

The most important change brought about by U.S. tariff measures is the introduction of a new value or principle: reciprocity. During the Joe Biden administration, the United States emphasized economic security, but before reciprocity emerged, this was a tool to spread America First policies. The key issue now is whether American-style reciprocity will spread, but it does not appear to be happening yet. If reciprocity does not spread, it is more accurate to see this not as the end of the free trade or globalization era, but as the United States' withdrawal.

- Are other countries maintaining free trade based on the existing World Trade Organization (WTO) framework?

▲The core players are the EU, China, and Japan. The EU, as a traditional supporter of multilateral order, finds it difficult to accept reciprocity in terms of values. China, having been the greatest beneficiary of the free trade era, has no reason to dismantle it itself. Japan cannot take the lead if China or the EU do not step forward first.

Free trade has been established as a concept for over 100 years, has gained broad support, and has demonstrated its efficiency in practice. If free trade continues without the United States, in the long run, only the United States will be at a disadvantage. Many American economists are making this very point. If economic damage within the United States continues to grow, it may become difficult to sustain reciprocity.

- Would this happen if inflation or employment indicators worsen?

▲The current Trump administration is highly ideological with its "Make America Great Again" (MAGA) stance. Ideology tends to try to overcome real-world obstacles rather than seek compromise. Even if side effects such as rising inflation or worsening employment emerge, the United States has a sufficiently ideological consensus, so it will not easily make concessions.

Some argue that if inflation rises, the Republican Party will lose in next year’s U.S. midterm elections, but it is difficult to predict. This may underestimate the underlying force in American society that led to Trump’s election. Even if they lose, it is hard to expect a dramatic policy shift under such an ideological consensus.

Jiman Su, Senior Research Fellow at the Korea Institute of Finance, is being interviewed on the 14th of last month at the Korea Institute of Finance in Jung-gu, Seoul.

- If the Democratic Party comes to power after President Trump, will there be any changes?

▲It is easy to predict because we have already seen the first Trump administration. During Trump’s first term, it was America First; under the Biden administration, except for issues related to multilateralism and climate change, little has changed. This shows that the policies of the Trump administration reflect the crises facing American society and changes in American perceptions. It is difficult to see this as limited to the policies of a particular party.

Furthermore, the United States has proposed universal tariffs to increase fiscal revenue, while also promising tax cuts. This means that if such policies are reversed, there will be a need to collect more taxes. The U.S. also emphasizes manufacturing initiatives, arguing that American workers must be made into a stable middle class through manufacturing-no politician can easily oppose this.

- Looking at tariff negotiations, it seems there are blocs such as the EU, Japan, and Korea, and another bloc with China, Brazil, and India.

▲In tariff negotiations, the EU, Japan, and Korea have chosen to adapt, while China, Brazil, and India have chosen to resist. The most important bloc is Mexico and Canada. From the U.S. perspective, these are its top two trading partners. Due to issues related to the United States-Mexico-Canada Agreement (USMCA), tariff negotiations have been delayed, but ultimately, the question is whether they will resist or adapt, and they have yet to decide.

Handling the USMCA is a complex issue. While the United States could push aside the Korea-U.S. Free Trade Agreement (FTA), it cannot do so with the USMCA. If it targets Canada and Mexico, American companies operating there would be harmed. Therefore, the future responses of Canada and Mexico are important. Watching the EU, Canada, and Mexico will be crucial for gauging the future spread of Trumpism around the world.

- What is your view on the situation between the United States and China?

▲Compared to the pre-Trump era, no issues between the two countries have been resolved. So far, there have only been a few practical deals, and further negotiations remain. One prediction is that after the United States completes tariff negotiations with other countries, it will focus its efforts on China. Another view is that, in reality, the United States and China may simply declare victory without actually negotiating. I believe the latter is more likely.

The fundamental issue is whether the two countries can directly confront and resolve their differences. The cost for both the United States and China would be too high. The three rounds of negotiations so far strongly suggest that things will proceed as in the latter scenario. Each time they negotiate, both sides claim to be satisfied, but they are more interested in declaring victory than in substantive outcomes. It does not appear that either side is truly ambitious about creating a new order between the United States and China.

Jiman Su, Senior Research Fellow at the Korea Institute of Finance, is being interviewed on the 14th of last month at the Korea Institute of Finance in Jung-gu, Seoul.

- China’s pace of technological development, starting with "Made in China 2025," is formidable. Will it eventually surpass the United States?

▲China has become a country that possesses everything from labor-intensive industries to cutting-edge scientific and technological innovation capabilities, after a long period of industrialization and economic growth. In particular, in new industries, a structure has emerged in which China creates new markets and dominates global supply chains in sectors such as solar power, wind energy, drones, electric vehicles, and batteries. This is the simultaneous growth of markets and industries.

One hundred years ago, the United States was such a country. When automobiles, electricity, and nuclear power emerged, the United States was always the number one market and the leading industrial nation. Until it peaked around 1950, the United States increased its manufacturing share and led global manufacturing. This is now being repeated in China. The continued dominance and control of global markets by China in manufacturing, including new industries, is inevitable.

What the United States should focus on to stay ahead of China is not manufacturing. It should leverage its strengths in financial competitiveness, the dollar system, scientific and innovative technological capabilities, and the stability of its higher education system. The United States still has overwhelming military power. I believe the world is moving toward an era in which the United States and China will share leadership, with China focusing on manufacturing and the United States on finance and services.

- In that case, it seems both sides will intensify efforts to draw neighboring countries to their side.

▲That phenomenon will become much stronger. Korea feels a great deal of stress over these issues. However, the question of what strategy to adopt in the long-term coexistence between the United States and China is one faced by all 190 countries except the United States and China. If we only see this as a Korea-China-U.S. triangle, there is no solution. Many countries are grappling with the same dilemma, and their concerns are no less significant than Korea’s.

(To respond,) mutual reference and solidarity with other countries are important. We also need to maintain some distance and composure. In the long run, it may be easier to judge the outcome by watching which side Europe takes. Rather than Europe simply picking a side, Europe will be the one to decide the outcome. During the Biden administration, Europe sided with the United States, but now it does so less, and it is certainly not siding with China. By using Europe, the balancing force, as a reference and adjusting our stance accordingly, we can avoid major problems.

- Europe’s current stance is to maintain economic relations with China because China remains economically important, correct?

▲Yes. That is what Korea is also trying to do. Even under the previous administration, the official position was to maintain a stable cooperative relationship with China. Regardless of whether the government is progressive or conservative, this is the reality for Korea.

- However, some conservatives point out that American officials continue to urge Korea to pick a side.

▲One of the most representative features of unnecessary discourse in Korea is the attempt to frame the Korea-U.S.-China relationship as a triangle. Seeing it as a triangle makes things extremely difficult, creates the impression that an extreme decision is required, and leads to thinking in terms of "which side should we take?" rather than "who will win?" In reality, the world does not work that way. Once you understand that the U.S.-China standoff will inevitably persist for a long time, it becomes impossible to judge the outcome, and if you cannot judge the outcome, no level of alliance can be one-sided. It is not possible to abandon one side.

- If President Xi Jinping’s term is ending soon and he tries to unify Taiwan within his term, leading to a Taiwan invasion scenario?

▲That is another attempt to deliberately create a triangular structure. For example, even in such a situation, I think we should watch what other countries do, but more importantly, we need to assess the question itself. We must be concerned about and prepare for such extreme scenarios, but first, we need to evaluate the likelihood. From Xi Jinping’s perspective, the Taiwan issue poses a risk of losing power, not an opportunity to strengthen it. The Taiwan issue itself is a risk. It is a topic that someone without existing power might touch to gain power, but it is not something an established leader would pursue. Xi Jinping already has strong power.

- China is also facing significant internal issues, such as deflation risk, a soft landing in real estate, and youth unemployment.

▲We need to separate China’s macroeconomy from its industries. The Chinese economy is currently in a very difficult situation. It has not found a good path out of real estate, and there are virtually no solutions to youth unemployment. Growth is slowing. Many areas require restructuring or have imbalances between industries. These are China’s problems. However, having such problems does not mean China is collapsing. A common misunderstanding in Korea is to equate China’s problems with a crisis. Korea also faces similar issues, such as household debt and an aging population.

Even if China’s growth slows, its industries can still develop. What affects us is not China’s growth rate, but the development of Chinese industries. What we need to pay attention to is the impact of Chinese industries and trade on Korea and the global economy.

- There is talk about the importance of maintaining the WTO system through the use of the Asia-Pacific Economic Cooperation (APEC), joining the Regional Comprehensive Economic Partnership (RCEP), or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

▲This is extremely important. Maintaining the existing free trade system is ultimately the surest way to prevent the spread of reciprocity. The United States is not interested in other countries engaging in free trade with each other. It only cares about its relationship with a world where the free trade order is maintained.

It is also important to ensure that the free trade order evolves to address new issues, such as not only American reciprocity but also unfairness arising from China’s state-led economic system. This requires active multilateral discussions. Only by maintaining the free trade order and multilateral system can we respond effectively.

Korea must play a key role and lead these discussions, but it is not doing so. We need to join the Group of Seven (G7) Plus. The G7 Plus strategy is a very rational and realistic goal. To achieve this, we must consistently voice our position. Advocating for the free trade order and calling for joint checks on unfairness related to China is in our national interest and can build national trust.