Impact of US-China Trade War on Korea;
Through Comparison
Jonghyun Lee
Recently, the US and China have been expanding their technology sector. The U.S has targeted DJI, the world's No. 1 drone company which is also a surveillance and security company, as the targets of sanctions. As the U.S.-China trade war seems endless, the struggle for a superpower between the two giant countries is not limited to just an issue of trade imbalance but is gradually turning into a confrontation between the camps. Some say history repeats itself as China's opponent of the United States over the Soviet Union in the late 20th century. Thucydides, a general and historian of Athens, ancient Greece, claimed that tension between emerging powers and existing hegemonic powers is inevitable. In particular, he stressed the need to avoid large-scale clashes as the economic conflict intensifies. Then, in this situation, how should the 3rd nation be prepared for what is coming?? This article will use the comparison between the two countries to guide how South Korea can establish its foreign economic, political policies.
The United States and China have been economically dependent as the largest trading partners to each other. In general, a trade war is likely to flow into a game of biting and slapping each other, not a winner-take-all zero-sum game. Nevertheless, there are some reasons why the Trump administration is focusing on the trade war by pushing China without showing any signs of making concessions.
The most representative reason is the accumulation of trade deficits with China and the consequent dissatisfaction. So far, the United States has recorded a chronic trade deficit with China. According to statistics from the U.S. Department of Commerce, U.S. exports to China stood at $130.4 billion in 2017, while imports to China stood at $505.6 billion, recording a deficit of $375 billion in the year alone. President Trump believes that China has maintained unfair trade relations and has taken jobs from the Americans by making a unilateral trade surplus.
Trump's protectionist trade policies and โhegemonyโ in the U.S.-China trade war
However, the substance of the Trump-led U.S.-China trade war should be seen as a "technology war" aimed at preempting high-tech technologies. Complaints are mounting in the U.S. over China's infringement of intellectual property rights, alleged coercion and theft of technology transfers, and restrictions on access to the Chinese market. In particular, leading U.S. IT companies; especially Silicon Valley, are known to have demanded President Trump to establish countermeasures against China's unfair technology transfer and intellectual property rights violations. Therefore, the purpose of the Trump administration's trade war with China can be seen as high-tech. The U.S. feels danger to China's technological development and aims to take the lead in technological development first. Moreover, the recent "spy chip" incident, believed to have been planted by China, has emerged as a major issue in the U.S. Spy chips were found on data center servers of major U.S. telecommunications companies and large companies, apparently for surveillance by the Chinese government. Spy chips are believed to have been used by China to collect information on U.S. companies' intellectual property rights and trade secrets. And they are also expected to help steal personal information from U.S. citizens. This would create another excuse for the U.S. to aim for a technological advance.
Donald Trump, who ran for the U.S. Republican presidential nomination from June 6-8, 2016, campaigned in Pennsylvania, denouncing China's unfair trade practices. He said he would impose tariffs on China under the terms of the Trade Act. He also attacked China's entry into the World Trade Organization as "job theft" that will go down in history. President Trump signed two executive orders at 3.31 in 2017. One was to strengthen anti-subsidy, anti-dumping duties, and the other was to examine the U.S. trade deficit and its cause. The U.S. and China have been negotiating the trade gap for 100 days but failed to come up with an agreement. Trump said China is stealing intellectual property rights and mentioned Section 301. It was the first time that he directly mentioned trade retaliation measures aimed at China. Article 301 of the Trade Act (Trade Act), enacted in 1974, stipulates that the U.S. government should exercise its legitimate rights in its relations with its trading partners. Trump's remarks mean that the U.S. government's refusal to pressure China violates its obligations set by law.
Unlike previous U.S. governments, the Trump administration's trade policy clearly shows its protectionist nature and emphasizes economic sovereignty that prioritizes its trade laws over multilateral trading systems such as the WTO. In particular, China and Russia have been defined as hegemonic challengers, including consideration of security issues in the decision of trade policy. Unlike the Trump administration, which is pursuing a mercantilist protectionist trade policy. Chinese President Xi Jinping defined China as a "guardian" of the free trade order in the Davos Forum. In particular, he emphasized the importance of free trade, emphasizing the world's largest trading power. The emphasis on the Chinese government's free-trade stance has already been stated in the 2017 Report on Government Affairs, which was submitted to the National People's Congress. The report set China's economic goals as "stable growth," "expanding growth engines," and "globalization of the economyโ. It also called for greater openness to foreign trade and multilateralism, while emphasizing its opposition to anti-globalization and protectionism. Chinese President Xi Jinping emphasizes the free trade order centered on the market, but the state is taking the initiative in promoting mercantilist industrial policies that foster industries. After all, both China and the U.S. are abolishing protectionism.
The U.S.-China trade dispute over a simple trade balance issue shows the aspect of economic competition, technological competition, and production competition. In other words, the U.S.-China trade war is a competition to secure superior economic power, a condition of hegemonic power. The declining U.S. pushed for a mercantilist trade policy to protect its industries and increase exports to restore its hegemonic economic power. China, a potential challenger, has to secure control over capital, market, and technology to emerge as a hegemonic power. China resulted in a "trade war" by strongly opposing U.S. pressure based on strengthened power.
The impact of the U.S.-China war on Korea can be largely divided into four categories. Tariff increases are one of the main means of trade disputes. This is because tariff hikes can effectively deter foreign goods from entering the country and play a role in protecting the goods of the home country. However, the increased cost inevitably leads to the burden of consumers in their home countries, as higher tariffs also mean a rise in the cost of importing goods. Therefore, consumers have to spend more money on the same quantity of goods, and they can only buy fewer products with the same amount of money. The second is currency devaluation. The strength and weaknesses of a country's currency are very sensitive to economic conditions. In particular, South Korea relies heavily on manufacturing, IT, and semiconductor sectors for exports, and the ratio of exports to China is high. However, the U.S. has imposed tariffs on Chinese goods, causing losses to Korea and China's trade surplus. The third is income reduction. Naturally, as expected, employees at companies doing business with Chinese firms will experience income reductions because the United States is not willing to buy Chinese items. Finally, a reduction in the value of financial assets. In particular, high-risk assets are expected to post large deficits due to the trade war. Considering the political status and geographical position of Korea, it is inevitable that Korea has a burden to deal with both China and the USโs economic policies. It is not wise to be one-sided and be only open to either one of China or the United States. But instead, the Korean government should try to carefully look into the long-term consequences of the US-China trade war and fit in a way that suits both of the trade policies.
Comments