Protectionism Threatens S.Korea

South Korea should brace for more protectionist measures from the United States as Donald Trump’s “America-first” strategy is expected to gain momentum in 2018, according to a noted US business professor.

He believes the Trump administration will step up efforts to reduce the US trade deficit with major trading partners, including South Korea, which many expect will encourage more US firms to bring new lawsuits against their foreign competitors, Yonhap reported.

Mauro Guillen, director of the Lauder Institute at the Wharton School of the University of Pennsylvania, said the most important issue for President Moon Jae-in to address in the new year is US protectionism.

“The threat of protectionism in the US … would be very negative for an economy such as South Korea,” he said in an interview. “It is hard to anticipate how that may play out in practice but the US is becoming more protectionist. The US is not a leader in free markets anymore.”

His advice comes as US appliance giant Whirlpool intensifies its trade battle against Samsung Electronics and LG Electronics, calling for the US International Trade Commission to impose stricter safeguards on imported washing machines.

The ITC in November announced its three-year tariff recommendation on washing machines exceeding a quota of 1.2 million.

New Trade Disputes

Since January 2017, there have been 23 new trade disputes between the US and 29 nations, including fights over Korean washing machines, Spanish olives, Chinese aluminum foil and Canadian jetliners.

Guillen, who serves on the World Economic Forum’s Global Agenda Council on Emerging Multinationals, also called on Moon to come up with measures to tackle two long-term challenges?the aging population and slow productivity growth.

He pointed out that a country such as Korea, with no natural resources, has to focus on manpower utilization so the government needs to formulate policies that unleash the creative potential of the people.

“A challenge is that the population in Korea is getting older,” he said. “The government needs to plan for this, and try to keep people active and productive. That is the biggest challenge and the best way to remain competitive.”

Reform of Growth Model

In a society disrupted by technology progress, Guillen, the author of “The Limits of Convergence,” a book regarding globalization and organizational changes in Korea, Spain and Argentina, stressed Korea needs to reform its growth model toward a more service-oriented economy.

“Korea cannot continue to grow as fast as it has in the past based on manufacturing alone,” he said.

In his view, Korea needs to develop capabilities in the service sector, such as banking and consulting, and Japan and Germany are good models the country can take cues from. “Even Japan and Germany, two manufacturing hubs, have developed important service industries, and now have large firms?banks, consultancies and software companies?in services,” he said.

In particular, as Korea becomes more of a service economy, he said that Korea should rethink its priorities in terms of education, infrastructure and international markets.

“Education needs to be more geared towards service industries and tech, and infrastructure less for manufacturing and more to attract and retain talent,” he said.

Guilien, who specializes in globalization and international political economy, advised major Korean conglomerates, such as Samsung and Hyundai, to restructure their business portfolios to remain competitive in the era of the Fourth Industrial Revolution.

“Large Korean firms grew by taking advantage of subsidies and export-related opportunities. As competition grew and Korea became a more open market, they specialized in a few areas,” he said.

“Now it is the time to continue specializing. If they cannot be competitive in a business, they should exit it and remain focused. They also need to diversify away from manufacturing and be more competitive in services internationally.”

Reshaping Global Economy

Guillen picked the sustainability of the dollar as the world’s leading reserve currency, technology?especially artificial intelligence, 3D printing and automation?and the rise of women as wealth owners, as three forces that will reshape the global economy in the coming years.

He thinks transportation will become one of the most promising industries as it will go through a major restructuring given AI and automation. “This will be the biggest change because it will affect the entire economy,” he said.

He expects the sector with potentially big changes will be financial. “Monetary tightening and currency instability will be the norm, and in addition changes in regulation?especially in the US?will also be consequential,” he said.