South Korea’s Moon calls on chaebol bosses to counter Trump’s trade threat
Since taking office in January, President Donald Trump has pulled the US out of the Trans-Pacific Partnership and started renegotiation of the North American Free Trade Agreement. The challenge for South Korean President Moon Jae-in, who heads to Washington this week, is to keep Trump away from another deal the billionaire dislikes: their 2012 free-trade pact.
The summit between Trump and Moon, scheduled for June 29 and 30, comes at a time of rising trade tensions between the two countries. Trump has derided the Korea-US free-trade agreement, known as Korus, as a “horrible deal” and “a one-way street”. His administration has targeted Korean companies with new penalties and investigations.
To help fend off criticism, Moon is taking reinforcements from Korea’s most powerful chaebol, the conglomerates that dominate its economy. Executives from Samsung Electronics and Hyundai Motor are among the 52-person business delegation travelling to the US to help convince a sceptical Trump that free trade with South Korea is to the benefit of both countries. They’re expected to take the opportunity to announce plans for new investments or deals that help create American jobs.
Korean companies may be borrowing a page from the playbook of other Asian firms in countries that Trump has criticised for their trade imbalances, according to Justin Jimenez, a Bloomberg Intelligence economist in Hong Kong. Masayoshi Son of Japan’s SoftBank Group and Jack Ma, China’s richest man, have both met with Trump and pledged to create jobs in the US. Ma’s Alibaba owns the South China Morning Post.
“Korean businesses are trying to get on the good side of the US,” said Jimenez. “Those kinds of promises can keep the floodgates open for Korean businesses to the US.”
While Korea’s trade surplus with the US has doubled since before Korus took effect, officials in Seoul emphasise investment in the US has expanded at a record pace. Direct investment rose 143 per cent in the first quarter of this year from the same period in 2016, according to the Export-Import Bank of Korea.
Moon and the chaebol executives are scheduled to appear on June 28 at a meeting of business leaders to explore new opportunities in manufacturing, services and information technology, according to the Korea Chamber of Commerce and Industry.
His government is hopeful the summit with Trump will focus on security issues related to North Korea’s nuclear programme rather than trade. This is “the most urgent task,” Chung Eui-yong, the head of South Korea’s national security council, told reporters this week.
Still, it will be difficult to keep the leaders from addressing Korus, said Deborah Elms, executive director of the Asian Trade Centre, a consultancy in Singapore. “Trump will have trade on the agenda.”
That’s where the chaebol executives can help. Kwon Oh-hyun, vice-chairman of Samsung Electronics, will join Moon on the trip, according to the Korea Chamber of Commerce and Industry. Samsung declined to comment on whether it plans to announce any investment in the US during the visit, referring instead to a March statement that it was in discussions related to opening a new factory for home appliances.
Chung Eui-sun, vice chairman of Hyundai Motor, will also be there. Hyundai and affiliate Kia Motors announced plans in January to spend US$3.1 billion in the US in the next five years, about 50 per cent more than the previous five-year period.
Another chaebol executive in Moon’s delegation is Cho Yang-ho, chairman of Korean Air Lines and its affiliate, the Hanjin Group. Korean Air and Delta Air Lines, which unveiled plans in March to form a joint venture, announced on June 23 they had reached final agreement on the deal to share costs and revenue on flights in the Americas and Asia.
On the same day as the Delta announcement, Hanjin held an opening ceremony for its 73-storey Wilshire Grand Centre in Los Angeles, where Cho said: “This is a good example of foreign investment emphasised by President Trump.”
Yet even if they keep Trump quiet for now, the Koreans will face increasing scrutiny on trade. He signed an executive order earlier this year calling for a review of “trade abuse” by major trading partners. Korean officials are concerned the country could figure prominently in the report, which is due as the summit starts.
Finance Minister Kim Dong-yeon said in a Bloomberg Television interview this month that he’s concerned by any type of protectionism.
“There are mutual benefits that the two countries have enjoyed out of the FTA,“ Kim said. ”The benefits have been reciprocal so far.”
Trump’s administration has already increased pressure on Korean exporters. In April it imposed new anti-dumping duties on Korean steel and this month launched a probe of Samsung Electronics and LG Electronics washing machines after Whirlpool – from Michigan, a Rust Belt state that helped elect Trump – called them “serial violators of US trade laws”.
LG said Whirlpool had “once again decided to seek government protection rather than compete in the marketplace” and that it would ”vigorously defend this case in the best interests of the tens of millions of American consumers.” Samsung said it rejected the notion that imports of its washing machines harmed Whirlpool.
Moon might be able to win a trade reprieve, according to Asian Trade Centre’s Elms, by arguing that US dissatisfaction with Korus is the result of poor handling of matters by previous administrations. Moon could argue that his government needs time to make things right, Elms said.
“They will do what they can to fend off the criticism,” Elms said. “They will probably argue that this Korean administration will do things differently and that the US should give them space to show that they can deliver.”