Moon Jae-in probably didn’t expect to be worrying about credit default swaps at the 118-day mark of his presidency.
Premiums on South Korean debt recently hit 18-month highs as North Korea tests its sixth nuclear weapon, startling Asian markets and making Seoul fear for its credit rating.
Even more surprising still, Moon is taking blows from a most trusted ally.
US President Donald Trump seemed to lash out more at Moon than North Korea’s Kim Jong-un in response to Pyongyang’s latest provocation.
Critical of what he called Seoul’s “appeasement” with North Korea, Trump now wants to withdraw from the five-year-old Korea-US free trade deal. An odd misdirection of anger, but one that greatly complicates Moon’s early plans to create jobs and raise living standards.
The risk is that North Korea’s military adventurism, coupled with Trump’s bluster, distracts Moon from the economic tasks at hand.
The risk is that North Korea’s military adventurism, coupled with Trump’s bluster, distracts Moon from the economic tasks at hand.
They include reducing youth unemployment (currently more than 9%), cutting record household debt, addressing widening inequality, catalyzing innovation and replacing the export-led model with “income-led” growth.
With predecessor Park Geun-hye in a prison cell and confidence weak, voters rallied around Moon’s 3 percent economic growth pledge.
It means wrestling power away from the family-run conglomerates, or chaebol, that impede small-to-midsize businesses and hamper competitiveness.
Moon laid out a wise manifesto of anti-trust crackdowns, taxes on super-rich tycoons and cashed-up corporate giants and reduced real-estate speculation. Seoul wants to give “trickle-up economics” a try.
Trump isn’t helping that transformation. In fact, he’s showing Moon’s nation, a long-time and vital U.S. ally, borderline contempt.
Sure, this could be little more than loose talk – a plot to force a reversal in a $27 billion U.S.-Korea trade gap that’s more than doubled since 2007.
It’s an oddly familiar pattern, though, one to which Australia’s Malcolm Turnbull and Germany’s Angela Merkel can attest.
If Trump wants his legacy to be losing every trusted friend America has, he’s off to an impeccable start. Disrespecting Moon’s young administration is a particular own-goal, given Seoul’s pivotal role as a bridge to Pyongyang.
Of course, Trump’s anger at North Korea could quickly become a major headwind globally. His threat to cut trade with any nation that does business with Pyongyang is preferable to all-out war, but this nuclear-economic option would shoulder-check the global financial system.
The nearly $700 billion of China-US trade hanging in the balance would panic world markets.
The nearly $700 billion of China-US trade hanging in the balance would panic world markets.
But nations that transact with North Korea include Brazil, Burkina Faso, China, Mexico, Pakistan, the Philippines, Thailand and Trump’s beloved Russia, according to a Massachusetts Institute of Technology report.
Trump, of course, wasted no time weaponizing trade. He reneged on the 12-nation Trans-Pacific Partnership, and his team is re-negotiating the North America Free-Trade Agreement, or NAFTA.
Trump started out doing the same with the Korea-US deal, only to change his mind and seek to tear it up. Trump can’t even be consistent in making US policy inconsistent.
Even if Trump ditches the Korea-US agreement initiated by former President George W. Bush, goods will still flow westward, ending up in American auto showrooms and electronics shops.
But American families would pay more for their SUVs, flat-screen televisions and smartphones and it would hurt. The US is the biggest market for Samsung, a conglomerate that generates between 20% and 25% of South Korea’s annual gross domestic product. The bottom lines of Hyundai, Kia and LG would take hits, too.
That puts Moon in a bad place. One of his biggest challenges is curbing the family-run conglomerates, including Samsung, that suck up most the economic oxygen.
These “chaebol” monopolize industries, hoard talent, bully subcontractors, pick off any startup that might imperil their market share and play by opaque governance rules that dent shareholder value.
Moon seeks to turn Korea Inc. upside down through regulatory action, tax incentives and $9 billion of stimulus.
Before he can make Korea great again, Moon must protect the gains Asia’s No. 4 economy has made in recent decades.
The distraction from Kim and Trump slugging it out rhetorically – perhaps even exchanging real fire – is the last thing his young presidency needs. Or the rest of Asia, for that matter.
Eagerness to impute the US with utter immorality leads to utter misjudgment of the situation in East Asia, in more ways then one.
The whole idea is very clearly deduced from the NK crisis. Fast-forward 20-40 years, Taiwan will face even far greater economic pressure from the Chinese mainland. The US cannot and will not start a war without Taiwan agreeing to endure the consequences. Greater and greater threats without execution will be very effective for the Chinese mainland on Taiwan. Taiwan will have no choice but to negotiate in an inferior position.
Eventually, even if Taiwan had the venue and avenue to declare that it wants the US to start a war on its behalf and to endure the inferno of war, the US would still have the sanity and decency to urge Taiwan to choose negotiation over war.
Taiwan is very vulnerable. Extremely little force from the Chinese mainland will slowly and very seriously erode business confidence in Taiwan.
Taiwan’s refusal to accept nuclear energy is a sign that it is in denial, thoughtless, and/or irresolute. As long as Taiwan continues to rely on fossil fuel for power, its de facto independence has no political future. With very little force, the Chinese mainland will one day, say after 2040, harass Taiwan’s energy security with impunity and effectiveness. The US then could only offer lip-service protest on Taiwan’s behalf.
If Taiwan went all-nuclear in power, the Chinese mainland may not dare to create a catastrophe on the get-go. With fossil fuel, it will be abject vulnerability that begs to be exploited with very little force and impunity.
Then the Chinese mainland could also breach Taiwan’s immigration with unarmed civilians. To escape, Taiwan will have to respond forcefully and to endure a likely war. It will not escape but will negotiate, with US endorsement.
Eagerness to impute the US with utter immorality leads to utter misjudgment of the situation in East Asia.
The US is very far from first strike on NK because the US has the minimal decency to not send SK or even Japan into the inferno, not so much for fear of Chinese or Russian response. If the US became recklessly fierce due to severe enough threat, these bigger countries cannot do much.
NK’s Kim misjudged the US and is in a predicament. Even if NK succeeds in being a nuclear state, being so will continue to impede its economic development. The truth is the NK has not been vulnerable without nuclear weapons. This is because with just non-nuke, the US still will have to not start a war that will push SK and Japan into the inferno by non-nuclear weapons in sufficient quantity. Many actions by NK since many years earlier could have started a war if the US had been reckless.
The US is rather arrogant but is sane and progressive in certain ways. Specifically, China should view the US as an ideological phenomenon, like rain or snow, that can be dealt with successfully, certainly not an enemy.
The US will be militarily paralyzed as long as a war has not happened but could happen with devastating consequences, absent direct threat serious on the US. Therefore, greater and greater threats without execution will continue to be very effective for China in the decades to come.
bshefugwergierw
The reality is the American troops are not needed in South Korea. Moon’s problem is he has allowed the North Koreans to capture the narrative. Let us see how "WISE" a leader is in the coming months BUT at present he has dropped the ball. If he was smart he would have sent the American missile system packing when he became President———-that was the loser and mental case Park’s decision BUT he doubles down and increased the number of American missiles and then allows a environmental study by the Korean Govt. to open up all doors to continued trouble.
Finally, NK has broken the deadlock and peace is in sight. USA must swallow its pride, must come to terms with itself and must accept the fact that NK is now a fully-fledge nuclear and ICBM power. Once the USA will have digested this fact, it will remove all its soldiers and its military equipment out of Korea because no country can occupy the territory of a nuclear power. Once all American soldiers will have been removed out of Korea, Korea will be reunified and all UNSC sanctions will be lifted on the Koreans.
South Korea must terminate the US bases. The US is preparing a war on North Korea and South Korea will be part of the battle field. There are nearly twenty nuclear targets and a significant number of missile sites. The US Army wargame simulation “North Brownland” show it will take a minimum of fifty-six days. Rand Corporation have more conservative estimates. Rand Corporation estimate forces needed is more than the Iraq and Afghan invasion combined. https://youtu.be/eXFhN55obkc
The above video seems naïve and this food drop idea laughable. No one seems consider how much damage North Korea can do against the twenty-four nuclear reactors in South Korea or against the heavily populated Soul. The US invasion plans indicate invade South-West of P’yongyang, not from the South as shown in the video. The South is too heavily fortified. It is naïve to believe North Korea passively will wait for an attack, most likely North Korea will act as soon as they see US/South Korean preparation for war.
Even talk about war is not good for tourism and investments in Korea. Samsung is a huge supplier of parts to other large electronic companies and they are likely to look for alternate supplier. An attack on South Korea could have severe impact on the economies world-wide.
Sorry, William. I don’t think doing everything possible to prevent a superpower from capturing, then sodomizing with a bayonet, and finally being killed can be classified as "military adventurism". I’d call it survival instinct.