Tuesday, November 22, 2016

Trump and Trade, Part 2

“Trump?”—a question that surfaced often while I attended the 2016 LA Auto Show Media Days. I fielded questions from both Korean and American auto industry leadership on the impact of the election. Many had been following my daily posts and recent commentary.

Assessing what next to share, I see several actions by the incoming U.S. administration.

First in contrast to the president-elect’s bold statements to take on NAFTA, I find the U.S. is less likely to purse extreme actions such the withdrawal from or a major renegotiation of the KORUS FTA.

That said, the U.S. is likely to strengthen “policy” measures that could restrict imports by imposing anti-dumping tariffs or countervailing duties. This is not new. For example, after a repeated pattern of pricing below cost by Samsung and LG on clothes washers over the years the Korean brands now pay hefty anti-dumping duties to offset margin and price advances over manufacturers and threatening American manufacturing jobs. The incoming president could direct the U.S. Department of Commerce to aggressively purse similar actions against Korean importers where local jobs are impacted.

The incoming president may also demand its trading partners revalue their currency, starting with those nations that we recently placed on its currency watch list. In April, the U.S. Treasury Department announced a list of countries on its watch list that includes South Korea it would closely monitor for any unfair trade practice. Weakening a currency can make goods produced for export more attractive however it leads to a trade deficient especially if the host country has a stronger currency as is the case with the Strong U.S. Dollar. 

In recent days, the U.S. Dollar has continued to surge in value against currencies around the world following the election. Again, this may be good for American consumers buying foreign goods but makes U.S. manufacturing less competitive for export. As for the South Korean Won it has finally begun to strengthen against the Dollar following the shock U.S. election results.

More an issue than the Dollar to Won is if the U.S. targets and designates China as a currency manipulator and slaps up to 45-percent tariffs on Chinese imports to America. Korea will as a ripple effect suffer since their economy is increasing dependent on its export trade to China, which would slow.

Well-Stated Korean Concerns …

My longtime friend Yun Won-sik, who serves as the executive vice president for the Korea Trade-Investment Promotion Agency (KOTRA) recent statements capture the mood in Korea. He notes how major Korean exporters could potentially face increasingly unfavorable business conditions in the United States.
"Although it is too early to say what steps the Trump administration will take at the moment, it is certain that Korea will face greater pressure to open its legal and other services industries, and curb its shipments to the United States," 
Yun said."It is unlikely that Trump will nullify the KORUS FTA but will instead choose to revise it in favor of U.S. companies. He will certainly raise trade barriers to keep out foreign goods to revitalize America's faltering steel and other traditional manufacturing industries as he promised to marginalized blue-collar workers."

Oh, one more thing…

On the encouraging side, earlier this year the International Trade Commission (ITC) showed the KORUS FTA did have a positive effect on the American economy and improving the trade balance.

The report pointed out that the KORUS FTA led to a $15.7 Billion improvement in the U.S. trade balance in 2015. The U.S. posted a $28.3 billion trade deficit with South Korea that year, but it would have been $44 Billion without the bilateral free trade pact

Building on this and to counter the fallout of Trump's protectionist trade policies, last week the Korean government has begun to mobilize resources in an effort to sway the incoming U.S. administration that the KORUS FTA is mutually beneficial and, in particular, how South Korean investments in the U.S. has stimulated American jobs over the years.

I, too, see this as a strong argument as one only has to travel Route 85 South from Georgia into Alabama to see the growth spurred by the Kia Motors Manufacturing Georgia and Hyundai Motor Manufacturing Alabama plants. The rise of Tier One and Two providers along the corridor and the boost to the local economy is hard to ignore. More so, for those of us who visited the area prior to the opening of the car plants.

Stay tuned to my updates as new developments unfold. Questions and comments welcome. Questions@Koreabcw.com

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