Trump’s World: A War of Protective Trade and Exchange Rates?
The world is fluctuating due to “uncertainty”. The birth of the first America’s “Outsider” president has shocked the world. The intensity of this shock was similar to when the result of the Brexit referendum came out. According to the Financial Times, Trump’s win after the Brexit conclusion will come as a huge blow to the maintenance of freedom and international order.
The reason behind the world’s tension towards Trump is due to his perspectives. Trump’s slogan during the election was “Make America Great Again”. He insisted that his first priority was the American economy and employment for U.S. citizens. Trump’s skeptical attitude towards free trade and the reform of labor markets has the potential to shake the world economy. The minister for the economy in Korea, Yu-Ilho, stated that “Trump was elected despite the predictions, so a change in global economy’s market has appeared, and that this occurrence could cause uncertainty in the world economy along with the Brexit and the decrease in China’s trade market.
In the election, Trump strongly supported “Protective Trade” and Isolationism. One of Obama’s biggest achievements, The Trans-Pacific Partnership (TPP) is facing cancellation. The TPP, which was an agreement between the US and Japan and other 12 countries, was a “Mega FTA”. Trump stated that “Agreements such as NAFTA or FTA were a failure and is the main reason for the disappearance of jobs”. “TPP will also bring the same result in the future would be just like other failed agreements”. He claimed that if he gets elected, he would withdraw from free trade agreements. This also means Obama’s aim to implement the TPP before the new Government is established has vanished. In addition, U.S Senator, Mitchell McConnell claimed that they would not deal with this agenda in the present year and the decision of the agreements regarding free trade including the TPP is up to Trump.
These circumstances require urgent consideration from countries whose main market is based on Trade. Korea is one country in this caregory. The Korea Economic Research Institute reported that the suspension of concessions or a renegotiation of the FTA between Korea and the United States, could end up being negative for Korea. Specifically, there could be a big loss in exports during next the five years and the loss of 24,000 jobs. The biggest losses would be in the automobile manufacture industry. The International Monetary Fund not only revealed their concerns about renegotiation but also the chances of retaliation toward countries that are suspected of manipulating their currencies.
Trump specifically pointed a finger at China, claiming that they were manipulating their currency, so that he will impose a 45% customs tariff on them. This may not only be a problem with China, as Korea could also be included. According to the US Ministry of Finance, Korea was on the watch list twice this year. In fact, Korea’s GDP compared with its current balance was the reason, The surplus reached 8.3% so it was put on the list. Trump also claimed that he will impose a 35% tax on Mexican automobiles to deter U.S companies from building Mexican automobile factories.
The currency is another variable. Trump mentioned in public about countries with undervalued currencies which would mean they are blacklisted in trade with the U.S. This means that the weak-dollar would play an important role in trade policy. Interest rate are also another variable. The U.S. is referred to as a “Hot Potato” in the world economy, but their interest rate tends to lean toward increasing. At present, the U.S. base rate is expected to rise this current year due based on favorable economic indicators and the employment market. Economic indicators in October, 2016 have been settled and the unemployment rate was 4.9% which is 0.1% lower than last year. Trump insisted that the United States should protect against an asset bubble that can occur due to low interest rate policies. In contrast, “a high interest rate might have a negative effect on the economy” said Trump. He also mentioned the additional opinion of financial auditing to ensure transparency of currencies. On this opinion, some experts have warned that it might cause a dispute regarding independency on currency policies.
On the other hand, positive perspectives exists such as the possibility of “enormous investment in infrastructure”, and “a rapid decrease in corporate tax”. Experts believe that these promises have cthe hance to eventually influence the world economy positively. Sung-won Song, an economics professor in the University of California suggested that “Trump promised to invest 50 trillion dollars over the next 10 years. This means not only infrastructure such as tractors and excavators, but also on IT which is essential for software development”, adding “If this is the case, Asian countries including Korea could also be influenced positively.” Markus Noland from Peterson Economy laboratory in the States added that “If companies such as Apple and GM which keep money in foreign countries bring their money back to the States, this will be beneficial to the U.S. and to the world economy”.
In conclusion, there are numerous assumptions and perspectives, but one thing for sure is that a rupture has been created in the world economy as free trade and globalization which has been the ruling paradigms during past decades in the world are now threatened. The president elect, Donald Trump, has promised to increase investment in infrastructure and revive manufacturing. However, concerns from both domestic and foreign groups will play a large part. In conclusion, the panic in the financial market regarding the unexpected election will be settled soon, but a solution is essential for the States’ and Global financial market’s instability, regarding Trump’s statements.