Two takeaways from General Motors’ South Korea pullback
Trump's predatory economics offer a harsh wakeup call that ought to stir officialdom in Seoul from complacency
The “Make America Great Again” president is gleefully taking credit for General Motors closing a plant in Gunsan, South Korea, and perhaps shuttering others. “They’re going to move back to Detroit – you don’t hear these things except for the fact that Trump became president,” Donald Trump bragged the other day, citing the effects of his recent tax cuts. “That is a really significant statement,” he said. “Many others to follow, from many other countries.”
This last comment is a dig at newish Korean President Moon Jae-in and other Asian leaders at a precarious moment. Even as Moon’s North Korea détente is coming together, nine months into his presidency, he faces a contracting economy. While modest statistically, the 0.2% drop in fourth-quarter growth was Korea’s worst performance since 2008.
Then came the end of America’s 23-year-old strong dollar policy, which Treasury Secretary Steven Mnuchin declared dead on January 25. The won had already rallied 13% in 2017, and Korean exporters are looking at an increasingly difficult 2018.
Moon’s economy is learning faster than others that Trump meant it when he said he’d turn back the clock on globalization. The 2,000 jobs leaving Gunsan could be followed by another 14,000 in the months ahead.
On Monday, Moon said his administration will work “aggressively” to curb fallout from what he calls an “employment crisis.” Perhaps, but the Trump trade war that garnered so much applause on the campaign trail is in progress. Though Trump has avoided the big fireworks – tariffs of between 35% and 45% – recent levies on solar panels and washing machines suggest a major shock to Asia’s export-reliant economics is coming.
Trump’s decision to renegotiate a Korea-US free trade deal in effect since 2012 was an early hint he wasn’t bluffing. As Trump said this week: “We have a very, very bad trade deal with Korea. It’s incompetent that somebody could’ve made a deal like that.” Bottom line, he said, “We’ll either negotiate a fair deal or we’ll terminate the deal.”
“They’re going to move back to Detroit – you don’t hear these things except for the fact that Trump became president. That is a really significant statement. Many others to follow, from many other countries”
That means the art-of-the-deal White House expects Moon to cede considerable advantage. Shinzo Abe’s Japan and China’s Xi Jinping should expect a similar game of hardball from the Trump administration. While that might not shock President Xi, Prime Minister Abe is in for a rude awakening once he realizes that a close relationship won’t protect Japan Inc.
Moon’s need to diversify away from the US is takeaway No. 2. Granted, China has long since become Korea’s main trading partner. But the world’s biggest economy is a vital hedge against China’s predatory trade practices. Well, it was before Trump & Co. took the predatory route, too. Even with supposed US allies like Korea. Bottom line, until the US elects a pro-trade leader again, Korea must look elsewhere. One option: join the 11 remaining members of the Trans-Pacific Partnership.
Moon also needs to look inward and accelerate efforts to restructure an economy that’s too reliant on a handful of family-owned giants, or chaebol, and exports. He’s off to a slow start on pledges to create more space for startups and small-to-midsize enterprises with tax incentives and regulatory shifts. Politically-connected chaebol tycoons have long hoarded too much of Korea’s economic oxygen.
Last month, Moon did indeed turn heads with Korea’s first corporate tax hike since 1991. Aimed at the highest-earning companies, the increase in levies to 25% from 22% is clearly aimed at the Samsungs, Hyundais, LGs, Lottes and other names towering over the nation of 50 million. But Moon needs to step up anti-trust enforcement to really take chaebol monopolies down a peg. He also must champion more international corporate governance practices, discourage takeover defenses and create new safety nets to encourage risk-taking among young Koreans.
Part of the challenge is moving Korea even further up-market so that no workers would even want to build GM vehicles. If there’s any silver lining to the Trump era it’s the harsh wakeup call stirring Seoul officialdom from complacency. Your move, President Moon.