[Start Economy] "Hyundai Motor Donates $1 Million"... Will the 'Tariff Bomb' Make a Breakthrough in the Trump Era?

■ Host: Anchor Lee Jung-seop, Anchor Cho Ye-jin
■ Starring: Professor Seo Eun-sook, Department of Economics and Finance at Sangmyung University

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information. Please specify [YTN News START] when quoting.

[Anchor]
We deliver the latest economic news quickly and kindly. Start Economy, today we will be with Seo Eun-sook, a professor of economics and finance at Sangmyung University. Welcome, professor. Since Trump was elected, companies have continued to donate every day, and Hyundai Motor has also joined. It's been reported that you've donated $1 million, but it's been reported that you've donated for the first time to the inauguration of the president of the United States, what's the background?

[Seo Eun-sook]
This has something to do with the policy stance of the second Trump administration. If we summarize the policy stance briefly, we will now protect U.S. manufacturing under the policy stance that advocates America First, and then we will protect U.S. manufacturing. And there is a part that says it will create jobs in Korea. The third is the conflict with China. All three of these are very closely linked to Korea's automobile industry, and it can be seen that the ripple effect on the automobile industry is very large. So if you look at it, it's very likely that we will actually impose higher tariffs on automobiles and parts produced overseas due to the policy of manufacturing in the United States and prioritizing job creation. In addition, Trump is now vowing to impose more than 100% tariffs on Canada and Mexico, which were his big trading partners, starting from his first day in office, so in our country, according to KOTRA's data, we are now producing cars and auto parts for U.S. exports from Mexico. This is about 100 companies in total, including Kia, Hyundai Mobis, and Hyundai Weah, where Korean companies operate Montray factories. So, it seems that the imposition of tariffs will not be small. When we put this universal tariff, which is 10% universal tariff, the Korea Institute of Industrial Economics and Trade says that almost exports will decrease by 13.6%. As a result, Hyundai Motor has no choice but to actively respond to this trade policy. So the response that we're doing now is to make production investments to build an investment base in the United States, to increase company investments, and then to make technologically superior products in the electric vehicle sector, where subsidies are now eliminated. So, even during Trump's first term, he had already planned to actively invest in building automobile facilities. Then, in 2022, we are operating a factory in Georgia, USA. So, I know that it will be officially opened and operated this year. So I will participate in Trump's inauguration and cooperate. And it seems like he's just donated about $10 billion to Trump's inauguration to deliver a message that he's going to make a huge contribution to job creation in the U.S. and then to the U.S. economy. Not only this, but now, starting with Ford, Toyota and others are all donating about $10 billion in donations and cars to the inauguration, so it seems to have been done at the same level.

[Anchor]
Attention is now being paid to whether Chairman Chung Eui-sun and President-elect Trump will be able to meet. Other companies are now actively investing in the U.S. ahead of the launch of the second Trump administration. It's an inevitable choice, but there are concerns. Which part do you look forward to?

[Seo Eun-sook]
First of all, if you donate first, this is about 1.47 billion won in Korean money. When you donate, you can get six tickets to attend a private dinner, so I understand that CEO Jeong Eui-sun will not attend this time, but I understand that executives will attend. I received about six tickets, so I think it'll probably go in. And then this is what people would think. You may ask if you can find a clue to the car tariff, but in fact, an inauguration donation can give a positive signal to solving the car tariff problem, but simply donating does not solve the tariff problem. So, I think it will be a positive message that Hyundai Motor will contribute to job creation and economy in the United States. However, the Trump administration said it would use the proportion of production in the United States as a very important criterion when dealing with automobile tariffs. So I'm thinking about how much Hyundai Motor will invest in the United States and deliver a positive message on these areas. Each company is actively participating in expanding production facilities in the United States because the policy of providing benefits such as tax cuts when investing in the United States is attracting companies to expand investment. But the problem is that labor and operating costs in the United States are very high. As a result, the economic power can be very low compared to the global production strategy. Next, for companies that were usually producing in low-wage countries, the expansion of investment in the United States is likely to be a significant cost. When you try to make these investments to increase production in the United States, there is a situation where you have to adjust your existing global supply chain. But investment is a very long-term part. Then, it can be seen that you can already invest in the initial investment and then experience great confusion in the management process. Then, as I just said, it's a very long-term investment, and if protectionism disappears or happens again after the Trump administration is over, companies' investment decisions may act as a very long-term burden. And then we expanded our investment, and if interest rates rise in the U.S. or if the economy shrinks, in fact, if the economic environment deteriorates like this, profitability can be very limited. Above all, as I said earlier, a lot of global companies are trying to invest in the United States, so we can see that competition may become excessive and affect profitability.

[Anchor]
It's literally not that easy to build a factory. It must take time, but companies seem to have a lot of trouble. We'll also look at the next news. Banks once received a lot of interest-based dabi plates due to the difference in deposit-to-deposit interest rates. But now, the policy of additional interest rates seems to be changing.

[Seo Eun-sook]
Shinhan Bank announced that it would lower the additional interest rate by maybe 0.3 points. Isn't the additional interest rate a system created to regulate household debt until last year? However, lowering the additional interest rate will lead to a situation in which loans increase again. Nevertheless, one of the biggest reasons why banks are trying to lower their lending rates a little competitively was because they limited their lending volume to the total amount of loans. This ended at the end of last year and it was reset again this year. So, as loans are available again and loan products can be provided again, banks are competing to preoccupy expanding the size of loans in the market first. But if interest rates are cut, it's very advantageous for consumers. In particular, consumers who have taken out household debt, loans, may experience a slight reduction in interest rate burdens and we can expect this to help ease shrinking consumption in a way. But I don't think the loan or competition will be that intense. The situation is not easy. Because first of all, as the exchange rate rose very high, a very red color came into the bank's soundness management. As a result, the delinquency rate on corporate debt is very high, and the delinquency rate on loans is also increasing. But the government's household debt management has weakened, and that's not true. So, the financial authorities continue to predict monthly and quarterly limit management. However, if a certain bank lowers the additional interest rate significantly because it is willing to compete, there is a possibility that a lot of money will be concentrated in that area, and the financial authorities say they will continue to adjust the total amount of household debt on a monthly and quarterly basis, so it is very difficult to competitively lower interest rates on this part. One of the more important factors is that U.S. Treasury yields are going up a lot right now. So the interest rate has been rising since the U.S. said it would speed up easing the benchmark interest rate. The rise in government bond rates also affects Korea's long-term interest rates. In particular, the interest rate on financial bonds, which is the standard for determining interest rates, can also rise, so this becomes a standard for determining interest rates, but there are areas where it is not easy to lower as it goes up.

[Anchor]
In the meantime, statistics showed that the size of loans has increased significantly only for the elderly in a year.

[Seo Eun-sook]
I looked at the data by age group. I saw that people aged 60 or older account for 33% of the total loans. Then, the number of loans in their 50s and 60s exceeded about 730 trillion won with 32.6 percent, and the total amount of private business loans is 1,125 trillion won, of which 65.6% is now. The size of loans by self-employed elderly people itself is also increasing. So the balance of over-60s loans increased by 6.6% in about a year as of the end of December 2023. So, the average growth rate of the entire age group was only 0.2%, but compared to this, only those in their 60s increased their loans significantly. The top part of the self-employed loan is that a large portion of the elderly self-employed in their 60s have no income after retirement. We call this an income cliff, and it can be said that it is a debt that the elderly are owed because they are self-employed because they are doing business to prepare for this. We can interpret that the elderly's dependence on self-employed livelihoods is on the rise, and this has continued to slow consumption and high interest rates since the COVID-19 pandemic. As a result, it is the data that appears to have resulted in a very deteriorating financial stability of individuals.

[Anchor]
In the end, sluggish domestic demand can be seen with data like this, but the government has set up temporary holidays to boost domestic demand and is offering 90 billion discounts and various support policies. Will these things be helpful?

[Seo Eun-sook]
We need to look at the consumption sales data. According to Statistics Korea, the retail sales index fell about 2.1% year-on-year from January to November 2023. This is the largest decline in 21 years since the credit card crisis in 2003. So what we're very concerned about is that sluggish consumption is not limited to a specific area, but it's spreading across all product groups. So, from durable goods to semi-durable goods to non-durable goods and food and beverage, all of them have decreased for two consecutive years in related statistics, which is the first time since related statistics were compiled in 1995. It's a very bad situation. In addition, consumer prices are rising. So, using various policies may be effective in the short term, but there are parts that can boost consumption. Nevertheless, basically, the structural problem of Korea's economic structure, and the second is the situation where people are closing their wallets as economic uncertainty has grown so much after the December 3 martial law. So, because of this, we expect that consumption will be very difficult to accelerate as we expected.

[Anchor]
I see. Today, I was with Professor Seo Eun-sook. Thank you, professor. Thank you.