The US and China called a truce in their trade war on the sidelines of the G-20 summit in Osaka, Japan, last week.
US President Donald Trump and Chinese President Xi Jinping agreed to restart trade talks, and the US pulled back its threats to impose additional tariffs on Chinese products.
Considering the pessimistic outlook for their trade deal during the summit, the truce and agreement to restart talks can be regarded as a good thing. The Korean economy can take a breather now.
However, prospects for new talks are not so bright. Trump and Xi did not discuss specific compromise proposals. They have many issues to resolve before they complete negotiations.
The international community can now heave a sigh of relief, too, but cannot loosen up because trade conflicts between the world’s two largest economies may break out again anytime. Korea, among others, trades heavily with the US and China, and is intertwined with them in light of security and international politics too. It should brace for the recurrence of their trade conflict.
US-China trade war is effectively a struggle for hegemony. They will likely compete against each other for a long time and extensively. Korea needs to figure out mid- and long-term strategies rather than focusing on short-term responses.
US-China trade disputes intensified as their high-level negotiations on May 9 and 10 in Washington, DC ended without a deal.
The Trump government raised tariffs on Chinese products worth $200 billion from 10 percent to 25 percent on May 10, and three days later, China announced it would increase tariffs on US goods worth $60 billion from a range of 5 to 10 percent to that of 10 to 25 percent.
Washington then took a further step, threatening to raise tariffs on additional Chinese products worth $300 billion up to 25 percent.
The trade war between the US and China has shaken the global economy. The International Monetary Fund warned that the conflict could wipe $455 billion off global gross domestic product next year.
If the US restarts the trade war and imposes tariffs on additional Chinese products, Korea will be among countries hit hardest, as it depends on Asia’s largest economy for a quarter of its exports.
The US-China trade conflict has already struck a severe blow to Korean exports.
Its exports declined for the sixth straight month in May, when the on-year decrease rate accelerated to 9.4 percent, up from 2 percent in April. Exports to China plunged 15.9 percent in May and 20.9 percent for the first 20 days of June.
The truce in the US-China trade war is temporary. It is a matter of time before their conflict resurfaces.
China will not cease to challenge the US. Washington will keep trying to beat off Beijing’s challenges to stay as the world’s strongest hegemon. US sanctions against Huawei Technologies are but an example of its efforts to prevent China from taking supremacy in high-end technology.
Korea must formulate long-term strategies along with short-term responses to survive in the crossfire of the two giants. In the short term, it is important to support struggling exporters. In the long term, export markets must be diversified, and industries restructured to reduce the proportion of exports and manufacturing.
The cease-fire between the US and China has given Korea time to pause for breath and find a breakthrough in its economic crisis. Yet it must not forget that the embers of the conflict still glow. Negotiations may throw up nasty surprises at any time, depending on changes in the situation, as for Trump, trade talks interlock with his reelection strategy.
Washington and Beijing will eventually reach a deal in one form or another. Korea would do well to brace for a scenario in which that deal falls short of expectations.
Just six months are left until the deadline of the new talks at the end of this year, but US-China trade relations are volatile. The sense of relief may end quickly. There is no time to dawdle in drawing up mid- and long-term survival plans.