The debate on trade in the U.S. presidential election should concern Korea because trade has come under fire from the left and right.
On the left, Vermont Sen. Bernie Sanders blames the North American Free Trade Agreement and other bad trade policies for the loss of manufacturing jobs and stagnant wages that have weakened the middle class. Sanders has emerged as a strong challenger to frontrunner Hillary Clinton. On the right, businessman Donald Trump has attacked the same agreement and policies as part of his strident nationalistic campaign. Defying conventional wisdom, Trump has emerged as the front-runner for the Republican nomination.
The success of candidates who are sharply critical of trade agreements has caused the other candidates to take a more critical stance. The establishment consensus in favor of expanding trade is facing its most severe test since it emerged after World War II.
The rising chorus of criticism against trade in the U.S. coincides with growing criticism of the European Union, which was founded on the idea of free trade and open borders.
As the sixth-largest exporting nation in the world, free trade is critical to Korea’s economic prosperity. Using the Japan of the 1950s as a model, Park Chung-hee pushed to develop an export-oriented industrial economy. Korea imported raw materials and exported finished goods. As the Korean economy developed, the quality of exports increased and markets expanded as other nations, most notably China, began to grow.
The quality and destination of exports has changed over the years, but the paradigm has remained the same. In 2014, exports of goods and services accounted for 50 percent of gross domestic product, making Korea one of the most export-dependent countries in the world.
To ensure access to markets, Korea has reached a number of free trade agreements in recent years, including with the U.S. and the European Union. Negotiations on FTAs have been opened with Australia, Canada, China, Indonesia, Japan, and Mexico, all important trading partners to Korea.
The emerging critique of trade in the U.S. centers on the loss of manufacturing jobs that provided stable employment to a larger working class that grew into the middle class after World War II. FTAs are blamed for “shipping jobs overseas” at the expense of American workers.
The decline of manufacturing in the U.S. is old news. Complaints about trade were common in the 1970s, but faded as the strong economy of the 1980s and 1990s created more jobs in the booming tech and other new fields. Liberal trade policies allowed low-cost manufactured goods flowed into the country, helping to increase profit margins of multinational corporations. Displaced workers became marginal in political discourse as long as most people felt good.
Slow growth beginning in the 2000s, punctuated by the Great Recession, have brought trade and the decline of manufacturing jobs back into public discourse for the first time since the 1970s. But what is the solution?
Bernie Sanders has been in the Congress since 1991 and has voted against all the major trade deals. He is against the Trans-Pacific Partnership agreement, which President Obama supports. A President Sanders would take an active stance in renegotiating major trade agreements with the focus on punishing large corporations for moving operations overseas.
Trump’s thoughts are less organized, but he has said that he would immediately declare China a currency manipulator and threaten the use of punitive tariffs on imports from China if trade issues are not resolved. He opposes the TTP, and has threatened to impose extra taxes on companies that send jobs overseas.
Critics of trade are proposing solutions that would increase the cost of goods to consumers. In a normal election year, candidates who advocate such policies would find it difficult to attract support, but the success of Sanders and Trump, combined with the lack of a strong defense of trade from the other candidates suggests that attitudes may have changed. The population of the U.S. is aging, and older people buy less. Millennials are now the largest generation, but they are also buying less than previous generations at a similar age.
A return to strong economic growth of the 1980s and 1990s would dampen criticism of liberal trade policies as it did before, but that scenario is facing a demographic headwind. The more likely scenario is weakening support for free trade -- swift if Sanders or Trump wins; more gradual if another candidate wins.
Korean leaders would do well to prepare for a change in the paradigm that has benefited the nation for the last 50 years.
By Robert J. Fouser
Robert Fouser, a former associate professor of Korean language education at Seoul National University, writes on Korea from Ann Arbor, Michigan. — Ed.