U.S. President Donald Trump on February 13 (local time) invited his cabinet members and congressmen to the White House to discuss fair trade for American workers. There, he mentioned reportedly China 25 times and South Korea 21 times while mentioning Japan four times and Germany once. He also said that the KORUS FTA led to job creation only in South Korea and he would revoke the agreement unless it is revised through a fair negotiation. In addition, he remarked that GM’s plant is going to move back to Detroit from Gunsan, South Korea and this is possible because he is the current U.S. President. The U.S. President is taking advantage of GM and shaking South Korea with a midterm election scheduled for November this year.
Recently, the Donald Trump administration decided to impose tariffs of up to 45% on machinery components imported from South Korea and applied safeguard measures to South Korean washing machines and solar panels. Retaliatory tariffs on TVs and steel products are around the corner as well while considering import restrictions on semiconductors and automobiles. Revocation of the KORUS FTA has been mentioned repeatedly, too.
The U.S. trade pressure on South Korea has crossed the line and fairness has been lost in that no less than nine countries are recording a trade surplus with the U.S. exceeding that of South Korea. Specifically, China’s trade surplus with the U.S. amounted to US$375.2 billion last year, when South Korea’s was just US$22.9 billion. Those of Japan and Germany were approximately 300% of South Korea’s, too. Besides, both China’s and Japan’s surpluses have increased by 8% since his inauguration whereas South Korea’s has decreased by 17%. Still, on February 16, the U.S. Department of Commerce proposed to Trump that a tariff of 53% shall be imposed on South Korean products. Although the same tariff is scheduled to be applied to China, South Korea became the only ally of the U.S. to be subject to the tariff unlike Canada, the largest exporter to the U.S., and Japan and Taiwan, whose annual exports to the U.S. show little difference from those of South Korea. Even pro-American people of South Korea are more and more wondering why the U.S. government is so harsh on its ally.
The unfair pressure should be immediately stopped if it is because the current South Korean government’s policy on China and North Korea does not cater to the taste of the U.S. The bilateral relations of the United States and South Korea are not limited to their current governments but should be continuous based on a strong military and economic ally along with the value of liberty.
With the automobile sector emerging as a hot issue in the ongoing KORUS FTA renegotiations, GM shut down GM Korea’s plant located in Gunsan while hinting even a possibility of withdrawal from the South Korean market in order to urge the South Korean government to provide funds and cut taxes. However, GM, which acquired the local automaker back in 2002, has invested approximately one trillion won (US$900 million) in and taken more than three trillion won (US$2.7 billion) from South Korea since then to make a profit of over two trillion won (US$1.8 billion). Until 2010, the General Motors headquarters took 5% of GM Korea’s sales in royalties and lent money to GM Korea at an annual interest of as high as 5% without increasing its capital. This is why it is said that GM is attempting to dine and dash from South Korea.
Moreover, rumors are circulating that GM has made additional profits by supplying auto parts to GM Korea expensively and getting finished products from GM Korea at low prices before selling the products in third countries. GM’s main production base in Asia is Shanghai, not South Korea, and GM Korea has been close to an assembly plant.
GM Korea went into the red in 2014. For the following four years, the company’s cumulative loss amounted to 2.5 trillion won (US$2.2 billion) or so. Its cost-to-sales ratio exceeded 90% in 2009 and reached 96.6% in 2015 and 93.2% last year while Hyundai Motor Company’s stood at 76.7%. Although this is because of high labor costs common to every South Korean automaker, it is also true that the headquarters took too much profit to cause a rise in production cost. GM is slowly strangling GM Korea by withdrawing the Chevrolet brand from Europe and stopping its production in South Korea. Still, GM is insisting on the South Korean government’s support without coming up with any business recovery plan. GM told the government that it would shut down the plant the very day after the government proposed an in-depth look into the cause of the dire situation of GM Korea. This is nothing but a pre-prepared hostage situation in which more than 150,000 jobs are at stake at partner companies as well as GM Korea itself.
Propping up GM Korea with taxpayers’ money amounting to more than 500 billion won (US$450 million), which is unlikely to be recovered, should not be allowed in any case with GM’s exit strategy and militant union members’ greed remaining as they are. The current South Korean government’s pro-labor policy should not shake the right course, either. Any financing support from the government should be allowed only after GM Korea discloses the current state of its business and comes up with a plan for recovery. The union should share the pain as well.
Now, North Korea is trying to drive a wedge between South Korea and the United States. Deplorable is the South Korean government, which is failing to properly deal with the situation, although Trump administration’s unilateralism and GM’s shamelessness are problematic needless to say. Under the circumstances, South Korean President Moon Jae-in said on February 19 that his government would respond with confidence and resolutely to the US’s unfair protectionist trade policy and would be aggressive in pointing out the unfairness of U.S. demands in the KORUS FTA renegotiations. He also re-stressed the importance of the government’s New Northern Policy and New Southern Policy as tools for reducing South Korean exporters’ dependence on the U.S. and China.
Concerns are rising over the increasing friction between South Korea and the U.S. and where and how it will end.