Trade tensions between the US and China are escalating, although it is still early to determine if it will become a full-scale economic war between the world’s two biggest powers.
In the latest in a series of tit-for-tat actions, US President Donald Trump has instructed the US trade representative to consider imposing tariffs on an additional $100 billion worth of products from China.
Trump gave the instruction after China announced plans to slap major US exports of $50 billion, including soybeans, cars and aircraft, with retaliatory tariffs. The Chinese action was taken in retaliation for the US announcement that it would impose punitive tariffs on Chinese exports worth $50 billion over Beijing‘s alleged theft of US intellectual property and technology.
The latest actions taken by both sides seem to carry greater political implication than previous ones in that they apparently aim to damage the political standing of their own leaders -- US President Donald Trump and Chinese President Xi Jinping.
The newest US action on Chinese exports apparently targets industries Xi cherishes as China’s new growth engines, with which he hopes to develop the country into an advanced manufacturing power by 2025. The industries include medical equipment, bio-pharmaceuticals, industrial robots, telecommunication equipment, advanced chemical products, aerospace, marine engineering and electric vehicles and semiconductors.
In turn, the Chinese decision to include soybeans and pork is seen as a calculated move to damage Trump because they are major export items from the “Farm Belt” in which the US president enjoys high popularity.
What is fortunate is that neither side seems intent to enter full-scale trade war. Trump said the US was “still prepared” to have discussions. Chinese officials also said when the tariff hike might take effect would be announced later “depending on what the US government does.”
What is certain, however, is that the jabs and punches the world’s two biggest economies have been exchanging herald the growth of trade protectionism. Korea, whose trade accounts for nearly 80 percent of its gross domestic product, is already bearing brunt of the latest protectionist wave.
The Trump administration has imposed safeguard duties on Korean washers and solar panels. Washington exempted Korea at the last minute from a list of countries to be subject to a new 25 percent tariff for steel products, but Korean firms still have to cut back on their exports quota.
Exports to China face uncertainties, too. For instance, chips produced in China by Korean firms Samsung Electronics and SK hynix are not yet subject to new US import restrictions. But Samsung and SK hynix chips put into devices and equipment made by Chinese companies may face higher export barriers to the US.
Korea cannot but suffer heavily if exports to the two economies, which account for 36 percent of the total outbound shipments, falter. Moreover, a rising wave of trade protectionism would certainly damage Korean exports to other markets as well.
Given the situation, the Korean government was well advised to announce plans to weather trade tensions between the US and China. As the Trade Ministry aptly suggested, one of the more urgent tasks is accelerating efforts to expand export destinations.
Primary targets should include Southeast Asia, India and Russia and its neighbors. The Moon Jae-in government has already unveiled ambitious plans to develop closer relations with the Association of Southeast Asian Nations and Russia, and the efforts should focus on economic ties.
Hastening negotiations on multilateral trade pacts -- like the Regional Comprehensive Economic Partnership that includes the 10 ASEAN member states, South Korea, Australia, China, India, Japan and New Zealand -- will also help overcome trade woes. Officials have said they would positively consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Diversification of export items in a way to increase the portions of services and new industries is also necessary to minimize impacts from the growing threats to global free trade.