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2004-11-04 14:02:42
U.S. election weighs on Korea's trade
U.S. election weighs on Korea's trade  
Korea Herald Nov 4 2004 

At first glance, the U.S. presidential election appears to pose little threat to Korea's economy. Terrorism and security, not trade and access to foreign markets, are the buzz words of President George W. Bush and challenger John F. Kerry.

But economists here see enough difference for pause. The general consensus is the Bush administration would likely maintain its free trade and fiscal policies while Kerry may strengthen trade protectionism.

Jeon Young-jae, senior researcher at Samsung Economic Research Institute, noted that there are factors outside of any U.S. president's control, such as the U.S. Federal Reserve, which decides interest rates and other monetary means to control an economic cycle.

"However, the fact remains that Kerry prioritizes domestic employment first and thus his policies are more protectionist. He is saying he will restrict outsourcing and review the current structure of free trade agreements. He is making an issue of Bush's labor and environment conditions. This may slow down FTA talks for some time," he said.

Kwon Young-min, research fellow at the Korea Economic Research Institute, agreed, saying Kerry may try to end U.S. involvement in Iraq quickly and concentrate more on economic issues.

"So there's some possibility Korea may face more trade friction with the U.S. but I don't think it'll become a serious issue anytime soon," said Kwon.

"Whoever is elected, though, the U.S. is likely to raise issues with China in terms of trade and currency rates. The effects of the row with China may well spill over to Korea," he said.

The United States is Korea's second-largest trading partner. Bilateral trade was valued at $52.28 billion in the first ten months of this year, with Korea enjoying a $10 billion surplus on the strength of mobile phones, autos, flat screens and semiconductor chips. Top U.S. exports include aircraft, computer chips and agriculture products, aircraft, and agriculture products, particularly maize and soybeans.

"Chances appear high that the Democrats will take issue with trade surpluses of China, Japan and Korea, fueling trade disputes or resulting in further appreciation of Asian currencies," said Park Jeong-woo, an economist at Daishin Economic Research Institute.

Daehan Investment and Securities, in a recent report, has said that the results of the U.S. presidential election are expected to have both positive and negative impact on the Korean economy and financial markets.

"Clearly, a Kerry win will strengthen protectionist trade policy, and harm the country's exports. On the other hand, a second term for Bush could increase geopolitical uncertainties, while Kerry may relieve some of the concerns and help stabilize oil prices," the local brokerage firm says.

Kerry already has said that he will tackle the U.S. current-account deficit, the broadest measure of import-export imbalance and the extent to which it borrows from overseas.

It is now at a record 5.4 percent of gross domestic product, with the United States relying on foreign governments, including Korea, to buy Treasury notes. In effect, the foreign money is financing U.S. government spending on health care and other social programs. That makes many Democrats nervous.

The ways to damp down the current-account deficit would be to increase trade and or force down the dollar exchange rate enough to make imports too expensive for American buyers. Neither fix, of course, would be in Korea's best interest.

Kerry's Website says: "The Bush administration has done little to open key export markets in countries like Japan and Korea For example, auto exports to Japan are still essentially blocked by complicated rules. As president, John Kerry will use all the available tools to fight to open these markets."

If Kerry has a quarrel with U.S. auto exports to Japan, he can hardly find comfort with Korea's high tariffs on car imports. The ratio of Korean car exports to imports is a whopping 93 to 1, and many of the Korean models are being sold in the United States.

In an informal poll of 100 renowned academics, conducted by The Economist magazine, in the first week of October, a huge majority dismissed Kerry's complaints about U.S. companies outsourcing jobs overseas. Nearly 60 percent give his likely trade policy a bad or very bad rating.

Kerry calls for tougher enforcement of trade agreements and respect to environmental and labor standards. The Massachusetts senator calls corporate chiefs who export jobs "Benedict Arnolds," a reference to a general-turned-traitor during the American Revolutionary War against Britain.

In fact, Kerry has a strong free-trade voting record in the Senate. But his campaign rhetoric on exported jobs and trade access resonates especially well in Pennsylvania and Ohio.

They are part of the U.S. manufacturing region that have lost jobs and are two of the states regarded as a tossup between Bush and Kerry. Their polls will have a huge impact on who is in the White House the next four years.

Although the academics did not gush over Bush's record on trade, they believed by a nearly 2-to-1 margin that he would advance free trade and globalization more than his opponent.

Bush has prodded Congress to pass free trade agreements with five countries and has negotiated pacts with 16 other nations. His administration also has been active in World Trade Organization talks.

"Kerry will push the administration to live up to its responsibility to enforce existing trade laws - like the Super 301 process - which is the least they can do for American workers struggling to stay competitive in a global economy," the website of the U.S. senator says.

Special 301 covers protection of U.S. intellectual property rights. Korea was place on the Special 301 priority watch list in early 2004 because of its counterfeit products.

"While U.S.-Korea trade relations remain much less contentious than in previous decades, there are long-standing issues in areas such as telecommunications, intellectual property rights, automobiles, agriculture, and pharmaceuticals," said Christine P. Brown, researcher at Korea Economic Institute.

Another issue is Korea's screen quota, which is limiting the number of Hollywood movies here. The quota is a major barrier to a U.S.-Korea investment treaty.

U.S. trade negotiators also are pushing hard for Korea to end a ban on U.S. beef, which was imposed last December after a case of mad cow disease was found in Washington state. Korea traditionally is one of the main customers of U.S. cattlemen, Bush supporters.

Clearly, Korea is on the radar of U.S. corporations. Total U.S. investments in Korea in the first nine months this year amounted to $ 3.31 billion, the largest from any country, accounting for 39.4 percent of total foreign investments in Korea. In 2003, the total U.S. investments were $1.23 billion only.

On the fiscal front, the Daehan report observes that Bush is likely to sustain tax reduction policies and potentially run the budget into a larger deficit to boost the economy.

In his first term, Bush has pushed through tax cuts of nearly $2 trillion. They are scheduled to expire in 2010, but Bush wants to make most of the reductions permanent.

The tax cuts helped the consumer-driven U.S. economy, however, the proposed reforms for a Bush second term would put more of the tax burden on salaries and less on investment income. That could damp the actual amount of extra disposable income available to average households.

Kerry would likely work to reduce the budget deficit by cutting tax benefits and the defense budget.

"The potential tightening measures could hurt the economic growth in the U.S. in the short-term, but in the long-term it may have better results as the deficit narrows," Daehan said.

In the opinion of economist Park, in the short run, there won't be any big policy changes, nevertheless, the most important thing is that the Democrats have been eager to resolve the current-account and budget deficits, so they would highly likely trim Bush's defense budget and roll back tax cuts.

An end to tax cuts would help reduce the U.S. budget deficits and help prop up the dollar, but it would also slash income available to buy exports.

(ram@heraldm.com) (mhkim@heraldm.com)

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