What Would Happen If Trump Becomes President?

Hello, everyone. A few weeks ago, news that shook the whole world was announced from America. Donald Trump of the Republican won the presidential election over Hilary Clinton of the Democrats. Many were surprised, some disappointed, especially the minorities. Korean citizens were also shocked after hearing the election results, and worried whether Trump would actually impose the policies he came up with during the campaign. Today’s post will briefly talk about the expected impacts of Trump’s policies, especially trade protectionism, to South Korea’s economy. What will happen if Trump is inaugurated as the president?

 

A draft of Trump’s 14-point economic manifesto promises that,

 as president, he would “modify or cancel any business,

 or trade agreement that hinders American business development,

or is shown to create an unfair trading relationship with a foreign entity.”

(Source: http://www.cnbc.com/2015/08/26/why-trumps-protectionist-ways-will-hurt-the-economy-commentary.html)

 

This means, Trump’s protectionist policy is not only limited to immigration reform, but tariffs increase, reconsideration of FTAs, exchange rates, and so on. First of all, tax increases. Trump’s idea of a 35-percent tariff on imported goods would be the biggest tax increase on U.S. consumers in modern times.

The biggest business sector that will be influenced by trade protectionism is trade. The U.S. has been the second biggest trade partner to South Korea behind China. The Free Trade Agreement in 2007 relieved the trade barriers between the two countries substantially, and has attributed to the increase on net profit for Korean exported goods. However, if Trump reconsiders the FTA and the current tax rate, it will negatively impact Korean companies relying on U.S. exports, and operating manufacturing facilities in Mexico or China.

The South Korean government can be suspected for intentionally controlling the won/dollar exchange rate. For quite a long time, the U.S. has been watching the South Korea for maintaining the low won/dollar exchange rate, and accumulating surplus on trade balance. Donald Trump’s protectionism could put a stricter measure on currencies of certain countries including China and South Korea. The U.S. government has been urging for better transparency.

Secondly, the South Korean Won’s FX rate may be negatively affected. The currencies of 15 emerging markets have all weakened against the U.S. dollar as the election of Donald Trump to the U.S. presidency sparked concerns about capital outflow. The Korean won’s FX rate gained 3.6 percent against the dollar after the election result came out on Thursday. It is still uncertain whether the lower currency rate of the US dollar will continue however.

Even though Dr.Dooms are outnumbering the optimistic views, there are still some positive opinions on Trump’s campaign pledges. For example, construction companies can be benefited from Trump’s policies. One of the policies that Trump came up with was to invest on reconstructing public facilities and infrastructure that are falling behind. Therefore, U.S. can be a new target market for Korean construction and facility building companies. Also, Trump is trying to lower the corporate tax from 35% to 15%. It can be beneficial to South Korean firms that are operating in the U.S.

The actual inauguration will take place in January of 2017. It is still too early to conclude whether he is a good president or not. Will he actually implement his plans? Will it be an impediment to the economic growth of South Korea? Only history will tell.

 

References

Money S, [트럼프노믹스-상] 불확실성 늪에 빠지다, http://www.moneys.news/news/mwView.php?type=1&no=2016111619258028683&outlink=1

 

Article by Sangeun, a Junior in Business Administration

Leave a comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: