South Korea Says Economy Faces Increasing Uncertainties
As the Trump era officially began on Friday, dealing with US-led trade protectionism and economic uncertainties is becoming the main focus of the South Korean economy.
In his inauguration speech, new US President Donald Trump stressed his “America First” doctrine again, saying that his every decision on trade, taxes and foreign affairs will be made to benefit Americans, Yonhap reported.
Trump has pledged to withdraw from the Trans Pacific Partnership free trade deal signed by 12 Asia-Pacific nations and renegotiate the North American Free Trade Agreement. He has also denounced the FTA with South Korea as a job destroyer, hinting that he would seek to revise the terms.
In a recent annual government-level meeting on discussing pending trade issues over the Korea-US FTA, which took effect in 2012, the two sides did not mention any possibility of renegotiations.
However, experts are still worried that the Trump administration may target the Seoul-Washington FTA, citing that Asia’s fourth-largest economy posted $23.3 billion in trade surplus with the US last year, accounting for 26% of the country’s total trade surplus.
Also, the massive trade surplus may lead the US government to designate South Korea as a currency manipulator after putting China on its list in coming months.
Trump has insisted that the Beijing government is wielding influence on the currency market, warning that his government will label the country as a currency manipulator and restrict Chinese imports.
“If China is labeled as a manipulator, intensifying Washington-Beijing tensions and wide-spreading protectionism will drag down global trade and spark dispute over foreign exchange and trade across the world,” said the latest report by state-run Korea Institute for International Economic Policy. “Such global turmoil would spread to the South Korean economy, which is a small open market.”
The influence of the new US president on the global financial market was seen this week as his caution against a too strong dollar sparked turmoil in the global foreign currency market, resulting in a sharp appreciation of yen, yuan and won against the US dollar.
Economists noted that a weaker US dollar will weigh heavily on the South Korean economy as the strengthened Korean won would undermine price competitiveness of its products in the world market.
Also higher interest rates in the US will bring about a rise in interest rates in South Korea and put more burden on the country’s troubling household debt which reached 1,300 trillion won ($1.1 trillion) last year.
According to South Korea’s central bank data, a 1% gain in loan rates will lead to an increase of nine trillion won in interest on households, potentially discouraging people from spending more.
The South Korean government has been on high alert to map out a contingency plan against what Trump’s unpredictable economic policies and actions would bring about.