Trump 2.0 is buckle-your-seatbelts moment for Korea

By William Pesek

With his approval rating dropping to 17 percent, President Yoon Suk Yeol has enough problems. But Donald Trump’s return to the White House is about to make Yoon’s job far more difficult in ways few expected.

Yoon wasn’t leading Korea during Trump’s first stint in the White House from 2017 to 2021. South Korea’s economy, though, was collateral damage from Trump’s initial foray into trade-war economics.

Japan, too, as Trump’s tariffs on Chinese goods upended trade flows throughout Asia. Now, Yoon’s embattled administration confronts a Trump 2.0 era few thought possible. No one can say how it might go with any certainty.

Korea had many pre-existing economic issues before Trump beat Democrat Kamala Harris on Nov. 5. Between stagnant wages, surging home prices, near-record household debt and the outsized dominance of family-owned conglomerates, or chaebols, Korea has a collection of daunting problems for which Yoon has few detailed solutions.

These challenges are about to confront even larger headwinds as Trump makes trade wars great again. For starters, a 60 percent tax on all Chinese goods that Trump has been promising for a year.

UBS Group thinks that policy alone will cut China’s annual growth by more than half — chopping 2.5 percentage points off the gross domestic product of the globe’s top trading nation. That’s on top of weak retail spending, property investment and new home sales.

Over time, warns UBS economist Wang Tao, other countries joining in on raising tariffs on imports from China could kick off an arms race of tit-for-tat trade curbs. Korea will get caught in the crossfire as much as any nation — if not more, considering that Yoon is far from the first Korean leader to pledge a major economic overhaul, only to achieve very little.

Yoon’s predecessor Moon Jae-in moved into the presidential Blue House promising to level playing fields. Moon said Korea would pivot to a “trickle-up economics” model. He got little done.

Park Geun-hye’s 2013-17 presidency also telegraphed major changes. Korea’s first female leader pledged to build a more “creative economy.” Naturally, that meant curbing chaebols to make space for scrappier small and medium-sized enterprises to generate economic energy from the ground up.

Yet Park failed to put big reform wins on the scoreboard. The same with predecessor Lee Myung-bak (2008-13), whose reform legacy was thin.

The last 15-plus years of leaders pledging upgrades that never came left Korea more vulnerable to the Trumpian storms to come.

The China tariff Trump plans could be just the beginning. On top of the 60 percent everyone expects, Trump is eyeing an across-the-board blanket levy on every country.

How long do CEOs at Hyundai and Kia think it will be before Trump extends the 100 percent tariffs he floated on Mexican-made cars to Korea? The same with Toyota, Honda and Nissan over in Japan.

There are myriad other ways Trump 2.0 could put Korea at risk. One is if he moves to weaken the dollar. Trump 1.0 spoke early and often of manipulating the exchange rate to increase America’s competitive advantage. That could send the won sharply higher, creating challenges for the Bank of Korea.

The coming assault on the U.S. Federal Reserve is chilling for sure. In his first stint as leader, Trump pressured Fed Chairman Jerome Powell to cut interest rates. In 2019, Powell caved and lowered borrowing costs. But the damage was done. Not only did the Powell Fed add stimulus to an economy that didn’t need it, his team also damaged the credibility vital to the Fed’s ability to sway markets.

Trump has in the past expressed support for defaulting on U.S. debt. In 2016, Trump told CNBC that “I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So therefore, you can’t lose.”

In 2020, the Washington Post reported that the Trump White House mulled canceling debt held by Beijing amid trade tensions. With the U.S. national debt twice the size of China's GDP, it’s easy to see why that could cause a financial earthquake of historic proportions.

Surely, Yoon hopes he can charm Trump into giving Korea a break. Yet that might prove challenging as Trump invariably tries to pressure Yoon to engage in a bilateral trade deal — one almost certain to advantage the U.S.

Trump also is very likely to try to shake Seoul down for billions of dollars of protection money to continue hosting U.S. troops.

Then there’s Trump’s odd bromance with North Korean leader Kim Jong-un. Odds are good that Trump will invite Kim to Washington for a high-level summit. Seoul would be forced to look on with disgust as Trump applauds Pyongyang’s decision to send thousands of troops to Ukraine.

Amid this great uncertainty, at least one thing is clear: Trump’s return is very much a buckle-your-seatbelts moment for Korea.

William Pesek is a longtime Asia opinion writer, based in Tokyo. He is a former columnist for Bloomberg and Barron’s and author of "Japanization: What the World Can Learn from Japan’s Lost Decades."