"Make America Great Again"...How International Trade Order Will Reorganize

■ Host: Anchor Lee Hyun-woong, Anchor Cho Ye-jin
■ Starring: Professor Lee Jung-hwan, Hanyang University School of Economics and Finance

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

[Anchor]
President Trump's term to make America greater has begun. Let's look at the economic structure that will be reorganized. With Lee Jung-hwan, a professor at Hanyang University's School of Economics and Finance. Welcome. President Trump has officially taken office. I've highlighted the integration, the power, the process, those things that we expected, and I think we're going to sign dozens or more executive orders. What changes do you think will begin first?

[Lee Jung-hwan]
In fact, I can't help but talk about immigrants. Since the U.S. labor market is the most important issue and the immigration issue is also raised in security, I understand that President Trump has emphasized the issue of immigrants even before the election, and the first order this time has probably become an immigrant issue. In the end, we will declare a state of emergency for the southern United States, prevent immigrants, and send out illegal immigrants. He continues to express his willingness to do the work that he sends out through some cities, and many predict that these things will be initiated by the president's executive order. However, because of the U.S.-China competition, high-wage workers and high-value-added workers must be brought from abroad. As the U.S.-China science and technology competition intensifies, the demand for scientists and engineers eventually increases, making it difficult to compete with the U.S. alone. Looking at it, I think it's a situation to watch because there is this issue of having to bring these people from abroad. In the end, we are talking about this in terms of security and strongly talking about immigration, which is commonly referred to as the protection of low-wage workers, and it seems that there is a little conflict with high value-added, high-wage workers.

[Anchor]
Professor, we're talking now, so let's take a look at the situation on the ground. If you look at it now, the luncheon has been going on, and we can see that they are undergoing military inspection after the luncheon. The inauguration ceremony, which began with a salute to the flag, will now receive a military inspection as the chief executive of the United States. It takes place in the eastern square outside the National Assembly building. The military inspection ceremony is now underway. It is an event to confirm that the commander-in-chief has changed. Before going outside, they appear to be undergoing an army inspection from indoors, and there will also be a parade after this army inspection. You're looking at the situation on the spot together. [Voiceover] We're looking at the eastern square of the U.S. Capitol together. It's a military inspection. It means that the commander-in-chief of the U.S. military will be replaced. President Trump is expected to be seen soon. Right now, here is the East Square outside the National Assembly building, where the chairman's inspection stand is seen at the scene.

Let's continue with the questions. You said earlier that your pledge to deport illegal immigrants will be fulfilled as promised, which has foreshadowed a storm in global economy and trade, can you see it like this?

[Lee Jung-hwan]
In fact, there are many tasks, but in particular, I have to talk about tariff issues. And it's usually said that one of the Trump administration's favorite words is tariffs, and when tariffs happen, it's commonly called universal tariffs, but universal tariffs are the same for all goods. In fact, in the past, such policies were implemented to prevent imports by imposing tariffs only on high-tech products, but they are saying that they will introduce universal tariffs in earnest without such policies. In particular, there are many discussions that say that they will impose 25% universal tariffs on neighboring countries Mexico and Canada and 60% universal tariffs on China, and that such things as tariff retaliation will begin. However, the most important thing that the Trump administration considers is the lives of workers, that is, the lives of workers, so we have to mention the inflation problem. The worst part of inflation is tariffs. Some say that the Trump administration is actually imposing 15% tariffs when it declares an emergency economy due to inflation because import prices rise when tariffs rise, but some say that it is unlikely to raise tariffs from the beginning, and that it will take the step of taking tariffs and other policies together, using trade as a means of diplomacy, rather slowly than this. In fact, there was an opinion that they would impose a lot of tariffs on the first day, but that opinion seems to have disappeared, and you can understand that it is because of the inflation I mentioned earlier.

[Anchor]
I'll explain the site again now. Right now, the chairman's inspection and military inspection are taking place in the eastern square outside the National Assembly building. It seems that the people who finished the luncheon are moving to the place where the military inspection takes place one by one. As shown in the caption, the transfer of the authority to launch nuclear weapons is expected to take place here. If it had been as expected, it was expected that the military inspection ceremony would be held outside, but is it because of the weather? It seems to be going on inside the eastern square right now.

Let's continue talking. Earlier, upon his official inauguration, the White House website showed six priority policy agendas: ending inflation, lowering the cost of living, cutting taxes for American workers, strengthening border security, energy hegemony, and restoring safety in American cities. From our perspective, what is the most important agenda to keep an eye on?

[Lee Jung-hwan]
I think there are two things, but as I briefly mentioned, the tariff issue is the most important issue. In particular, the recent increase in economic dependence from China to the United States has highlighted tariff issues due to the increase in export dependence. Second, what I didn't say is about energy transition, and the former Biden administration emphasized green growth and green energy in pursuit of green growth. However, eco-friendly transitions become a big issue because the Trump administration has expressed its willingness to reduce U.S. inflation and promote economic growth by converting energy into carbon energy and supplying cheap energy through carbon energy. In particular, Korea's major industries are eco-friendly cars such as electric cars and secondary batteries. If energy conversion is reduced in secondary battery exports, it will slow down a little and fields such as automobiles can be delayed, so Korea's industry has no choice but to rely heavily on the U.S. energy issue. Therefore, Korea's export items are bound to change significantly depending on the U.S. energy policy, and Korea's investment decision-making can change a lot depending on subsidies, so it is necessary to continuously monitor how this affects Korea's industry because the Trump administration is going backwards and completely changing the Biden administration's policy.

[Anchor]
The world is paying attention to President Trump's words and words. Let me go into a little more detail, professor. Since tariffs are probably the biggest issue in the world right now, it is of utmost interest to see how the international trade order will be reorganized. First of all, on the day of his inauguration, he vowed to impose additional tariffs on Mexico, Canada, and China. What kind of changes will there be?

[Lee Jung-hwan]
First of all, I think Mexico and Canada are the same economic areas as the United States, so you've heard a lot about NAFTA, but it's a tariff-free area. Although it is a tariff-free area, there are many opinions that China and other countries may build factories there and sell goods to the United States using tariff-free areas, so they are talking about imposing strong tariffs. Then, in the case of China, universal tariffs will be imposed up to 60%. You can probably understand that there are continuous discussions about whether a 10% tariff will be imposed as a step. In fact, since the U.S. and China are competing for technological hegemony and economic hegemony, they are willing to sort out their economic relationship and stabilize American life through these tariffs. However, the difference from the Cold War era in the past is that China accounts for more than 40% of the manufacturing industry worldwide. Since almost half of all goods are made in China, the talk of imposing tariffs on China can be reduced to a direct increase in U.S. goods prices, and it can be understood that because of this increased economic dependence, some people may slowly impose tariffs on China or move toward policies that can have various mutual benefits through other deals. In fact, they are imposing tariffs strongly, but these things seem to be a situation where we have to wait and see. In fact, the problem is that if you impose tariffs, you will do retaliatory tariffs. Retaliation tariffs are an issue that should be watched diplomatically, security, and economically because Korea also puts tariffs on them because your country put them on. It's an issue that needs to be watched over time and we talk about leverage with each other, and I think I can tell you how to use this to take advantage of diplomatic and political victories, economic gains, these things seem to be a situation to watch.

[Anchor]
Let's deal with the problem that's directly connected to us. Korea is ranked eighth in the U.S. trade footprint, and in other words, we could have a lot of additional tariffs someday, can you interpret it like this?

[Lee Jung-hwan]
There is a lot of trade surplus in Korea, and from the perspective of the United States, it would be a trade deficit, but Korea has a lot of trade surplus with the United States. In particular, I think we are seeing a lot of surpluses in automobiles and other areas. What that means is that there may be discussions about whether these things are caused by the wrong exchange rate. There may be opinions that Korean goods are being sold to the United States too cheaply, or if you look at these things, you may say that you will respond appropriately by imposing tariffs. So, if you look at the first period of the Trump administration, there were a lot of talks about exchange rate manipulators. There are actions that the U.S. tried to gain various benefits by using diplomatic channels such as pressure on the exchange rate as there are opinions that the U.S. imports a lot from Korea, but the U.S. imports too much, but the U.S. has a trade deficit and Korea has a trade surplus. As I mentioned earlier, there are various channels that can be used as diplomatic leverage to give good benefits to the U.S. by imposing tariffs or talking about exchange rates. In the end, if the trade surplus continues from Korea's point of view, the more uncomfortable it is from the point of view of the United States, and there is a possibility that these things will be used politically.

[Anchor]
The live broadcast is going out right now. As mentioned earlier, several figures were seen coming out first during the military inspection, and now we can see President Trump and Melania in their seats. You will now receive a review of the chairman. It's an event to confirm that the commander-in-chief has changed. It's such a meaningful and important event. After this military inspection, it seems that it will continue to the parade, but the scene of the salute is also being shown on the screen. I could see President Trump and Melania moving around as they undergo military inspections. It looks like you're going from indoors to outdoors. Trump and Melania will now undergo a Speaker's inspection.

Let's move on to the next question. Like this, the tariff bomb from the United States, and as you said earlier, if we raise it, you will raise it too. As the vicious cycle continues, I think there will be an element of anxiety in the meantime, just as Korea bursts into a whale fight.

[Lee Jung-hwan]
There are likely to be several and two major issues, but what will happen once the U.S.-China trade conflict intensifies? Each other will continue to think about retaliatory tariffs. If retaliatory tariffs continue with each other, each other's economy will deteriorate. These situations occur in which China shrinks again because the US economy will see its growth rate decline, and China's economy will also see its exports decline. In fact, Korea is a country that sells all goods to both countries, so if each other's economy shrinks, as you said, it will inevitably suffer economic damage to the extent that there is a story about shrimp back exploding in the whale fight. Korea exports a lot of intermediate goods to China, and this is a situation where it will be hurt by this, and the United States, which exports a lot of automobiles, will inevitably suffer. In the end, there are discussions about the problems of tariffs themselves, and if tariffs start to be imposed in retaliation for each other, there will be discussions about these tariffs that can lower both countries' exports and lower Korea's exports, so there is no choice but to say that shrimp will burst in the whale fight. Then, as I mentioned earlier, it is about blocking access roads to Canada and Mexico. Korea is also gradually increasing investment. Shouldn't we change these investment policies? In the end, depending on how long these policies last, it will have a big impact on the investment policies of Korean companies. As I mentioned earlier, Korea's tariff policies to strengthen U.S.-China relations will inevitably have a direct impact, economic problems as well as regional lockdowns.

[Anchor]
I've pointed out some things by industry, but I'll go into a little more detail. What's the reaction of the oil industry to Trump's declaration of a national energy emergency?

[Lee Jung-hwan]
From the perspective of the oil refining industry, it can be seen as a good thing. In the end, what the story is about is that there are talks about withdrawing from the Paris Agreement. What it means to leave the Paris Agreement is that we will not implement the national carbon reduction goals, and that we will use more carbon energy. After all, the petrochemical industry and the oil refining industry rely heavily on existing carbon energy sources such as petroleum energy and natural gas energy, which can eventually become competitive when production increases and prices decrease. If the Trump administration slows down the transition to decarbonized energy and environmentally friendly energy and increases its dependence on existing carbon energy, it will eventually be accepted positively by the oil refining industry. It can be understood that Korean companies can also benefit from this structure because production will increase, supply of the entire industry will expand, and investments based on it can increase worldwide.

[Anchor]
What is the outlook on the nuclear industry due to President Trump's inauguration?

[Lee Jung-hwan]
In fact, you can see that the nuclear industry is also going back and forth, but nuclear power is very closely related to AI transition recently. What it means to be close to AI transition is that stable energy to make AI should form nuclear power, and especially those that the Trump administration is stepping up to ease AI regulations, so it can be a positive source for nuclear power as well. In the end, it is said that it will supply power stably in supplying large-scale power such as data centers, especially through small nuclear reactors called SMR. If the speed of AI transformation increases and the Trump administration delays the transition to eco-friendly energy and hydrogen energy, it will inevitably increase its dependence on nuclear energy, and this itself can be understood as news that can work positively.

[Anchor]
And President Trump is now starting to overhaul the Biden administration's eco-friendly policies. In his inaugural speech, he said he would abolish the mandatory electric vehicle policy, so how will it affect the electric vehicle industry?

[Lee Jung-hwan]
In the end, what it means to abolish the mandatory electric vehicle policy is that the Biden administration will make electric vehicles by a certain goal, 50% by 2032. This means that more than a certain portion of all cars sold will cancel things like the goal of selling electric cars. In fact, let's say this is the Inflation Reduction Act. In the end, there were a lot of things like a system that subsidized eco-friendly cars for eco-friendly energy, but it was made a lot and implemented in practice, and there is a high possibility that it will be canceled. Or you can think of this as the possibility of not paying subsidies and things like that is increasing. In the end, eco-friendly policies can be regarded as industrial policies, and among industrial policies, it was a policy that subsidized eco-friendly cars, then secondary batteries, and eco-friendly energy. Converting this to carbon energy eliminates the need for many of these subsidies. Particularly problematic is that in the case of the secondary battery industry in Korea, many companies such as LG Energy Solution are actively investing in U.S. secondary batteries, and subsidies were the basis for this investment. What will happen to the investment if it was such a subsidy and there is a situation where you will not be able to receive the subsidy? In addition, it is true that there are concerns about whether there will be damage to companies, and in fact, when President Trump took power, Korea's secondary battery stock price also reacted negatively. I can tell you that there were issues such as subsidies and conversion of eco-friendly industries.

[Anchor]
When it comes to President Trump, we can't leave out the issue of defense cost sharing, but he also said it's a rich country, about our country. Is it possible to predict such a significant increase in South Korea's defense cost sharing?

[Lee Jung-hwan]
In the first period of the Trump administration, we continue to talk about sharing defense costs. In the end, the story that we will do policies only for the United States may be reduced to a story that we will not do policies that protect other countries, so please give us a justification. You can understand what it means to ask for a justification, which leads to the logic of receiving more money from the defense cost, and things such as defense cost sharing will continue to emerge as issues. Of course, there are rumors that the Biden administration decided on defense contributions at the end of the Biden administration, but in fact, the Trump administration can ignore all of those and request a new contract, so it is also a part that Korea should continuously monitor. I'm not an expert, but I think there's a story like, "Should we use the leverage relationship on the Chinese side and use the aspects that China is in contact with, the strategic relationship, to cut down on things like defense contributions?" I think you can understand the degree. In the end, all of these things can be used as a business, and in particular, in the United States' self-centrism, protecting other countries does not fit the concept, so it can increase the contribution of defense costs to Korea. However, since Korea has interviews with China, North Korea, and Russia, I will tell you that it is necessary to play this role of weakening the contribution of defense costs and reducing pressure.

[Anchor]
That's all for today. So far, I have been with Lee Jung-hwan, a professor at Hanyang University's School of Economics and Finance. Thank you.