US President-elect Joe Biden’s trade policy is expected to mark a shift from his predecessor Donald Trump’s unilateralism and protectionism to a more conventional approach based on multilateralism.
Along with his other economic initiatives, Biden’s multilateral approach to trade issues will pose both opportunities and challenges for South Korea’s economy.
President Moon Jae-in’s government is now urged to cooperate closely with local business associations and political parties to ensure that the economic partnership between Korea and the US continues to grow stronger during the Biden presidency, while responding appropriately to what may be more sophisticated trade pressure from Washington.
Korea, which relies heavily on exports for growth, is positioned to gain significant benefits from an improvement in global trade sentiment that may follow Biden’s inauguration as the 46th US president on Jan. 20.
His massive stimulus package, worth more than $3 trillion -- if approved by a Congress that could be split, with Biden’s Democrats retaining a narrow majority in the House and control of the Senate still undecided -- would bolster domestic demand and increase Korea’s shipments to the world’s largest economy.
A report from a local research institute showed that when the US growth rate goes up by 1 percentage point, Korea’s exports tend to increase by 2.1 percentage points with its gross domestic product climbing by 0.4 percentage points.
The country’s exporters must also be hoping that Biden’s departure from Trump’s go-it-alone approach helps settle pending trade issues with the US down the road.
As of the first quarter this year, the number of Korean products subject to US tariffs stood at 43, eight more than a year earlier. The figure is the highest among nations imposing duties on goods imported from Korea.
The incoming US administration’s eco-friendly policies could increase the burden on Korean exporters.
Last week Biden vowed that if he won the US presidential election, his country would rejoin the Paris climate accord on his first day in office. He has proposed a carbon adjustment fee or quota on imports that do not meet US environmental standards.
His “Buy American” policy, another key plank of “Bidenomics,” which is meant to boost US domestic manufacturing, will also heighten pressure on Korean companies to enhance their competitiveness and increase investment in the US.
The Biden team is expected to be more coherent and sophisticated than the Trump administration in getting Korea and other US allies and partners to join the US side in the escalating Sino-American confrontation over a widening range of issues.
His administration may not immediately redress this year’s “phase one” trade deal, which eased tensions with Beijing. But it will eventually move in that direction in concert with key US allies in Asia and Europe, unlike Trump’s unilateral approach.
Korean firms may find it more difficult to circumvent Washington’s push to decouple technological links with China and build supply chains to exclude it, if a Biden administration seeks to do the work systematically within the structure of international rulemaking.
This norm-based approach could further weigh on Korea, which relies on China as a market for about a quarter of its exports. Increased demand from China helped Asia’s fourth-largest economy grow 1.9 percent on-quarter in the July-September period of this year after two consecutive quarterly declines, according to recent data from the Bank of Korea.
Seoul also needs to prepare for the possibility that a Biden administration will move to rejoin a free trade deal encompassing a dozen Pacific Rim nations.
Negotiations on the Trans-Pacific Partnership agreement were concluded in 2015 at the initiative of then-US President Barack Obama’s administration, in which Biden served as vice president. After Trump withdrew the US from the accord shortly after he took office in 2017, Japan led the other remaining members to launch the Comprehensive and Progressive Agreement for Trans-Pacific Partnership two years later.
Under a Biden administration that emphasizes multilateral free trade, the US is likely to seek to enter the pact, seeing it as an effective check against China’s growing economic influence.
Korea has been reluctant to join a trade framework for the Pacific Basin that excludes China. This stance may prove no longer sensible, if the incoming US administration moves to reenter it as part of efforts to rebuild Washington’s global leadership.