Trump, trade and troops: South Korea’s nightmare 

SOME targets of the American president’s tariffs, such as China and the EU, are fighting back. South Korea and Japan feel they have to play nice. They are terrified that President Donald Trump will weaken or even withdraw the security guarantees that have kept them safe for over seven decades. So, as he insists on a “one-stop-shop” negotiation bundling trade and other economic issues with security, they are scrambling to offer him goodies. Han Duck-soo, South Korea’s acting president, projected calm in an interview with The Economist on April 22nd. “Through co-operative negotiations with the United States, we will be able to find some win-win solutions,” he says.

South Korean and Japanese officials are putting on their politest smiles and heading to Washington. Akazawa Ryosei, the minister leading negotiations for Japan, visited the White House on April 16th and donned a MAGA hat. A week later, South Korea’s finance and trade ministers met their American counterparts. Talks with both countries are continuing.

South Korea’s task is made harder by political turmoil within. Mr Han, a mild-mannered unelected technocrat, was thrust into the limelight after his boss, Yoon Suk Yeol, was impeached for declaring martial law in December. A presidential election is due on June 3rd. Lee Jae-myung, the left-wing opposition leader, is the front-runner, but a Supreme Court ruling on May 1st to revisit alleged election-law violations has cast fresh doubt on his eligibility to run. Mr Han stepped down from his post as acting president on the same day; he is expected to enter the race for a full presidential term himself. Meanwhile, the government must try to avert calamity with America. South Korea is sure that any problems can be solved in “a rather non-conflicting way”, Mr Han says.

Still, he has no illusions about the stakes. Mr Trump has threatened in the past to withdraw some of America’s troops from South Korea. That would leave it far more vulnerable to threats from North Korea. The presence of American forces is “absolutely critical for us”, says Mr Han. To deter its despotic, nuclear-armed neighbour, South Korea also relies upon America’s nuclear umbrella. No one is sure whether Mr Trump intends to preserve this or fold it up, destabilising the region and creating an incentive for South Korea and even Japan to acquire their own nuclear deterrents. “That’s why we must continue to work with America and put on a brave face, no matter who is in the White House,” says Ahn Ho-young, a former South Korean ambassador to America.

While straining not to alienate an essential ally, South Korea and Japan are trying to limit the tariff trauma. Both are trade-oriented economies that export loads to America. Mr Trump has imposed “sectoral” tariffs of 25% on steel, aluminium and automobiles, which came into effect at the start of March and April. He has also announced—and then suspended for 90 days—so-called reciprocal tariffs of 25% on all Korean goods and 24% on Japanese ones. His tariffs on other countries, such as China, will add to Japan and South Korea’s pain by disrupting their supply chains. Mr Han speaks of the tariffs as “shock therapy”; Ishiba Shigeru, Japan’s prime minister, says they have caused a “national crisis”.

The economic pain for both South Korea and Japan could be more severe than for most countries. On April 22nd the IMF cut South Korea’s growth forecast for this year to 1%, down from 2% in January; Japan’s growth forecast fell by 0.5 percentage points. (The global growth projection shrank by 0.5 percentage points.) If America puts a universal 25% tariff on all goods, South Korea’s GDP would dip by 0.8 percentage points, reckons Park Chong Hoon of Standard Chartered, a bank; the Nomura Research Institute, a Japanese think-tank, also predicts a 0.8 percentage-point reduction in Japanese GDP if all Mr Trump’s tariffs remain in place.

The car and steel tariffs have already caused serious harm. “It’s very painful,” Mr Han acknowledges. And the uncertainty about what Mr Trump will do next is equally worrying. Investors and consumers are putting off spending decisions until the picture is clearer. Through the first 20 days of April South Korea’s exports shrank by 5% compared with the same period last year; those to America fell by 14%.

Securing a reprieve will not be easy. Both countries have trade agreements with America, which Mr Trump’s new tariffs appear to violate. Mr Trump’s “reciprocal” tariffs are based on the spurious claim that South Korea charges effective tariffs of 50% on American goods. South Korea’s government notes that under the United States-Korea Free Trade Agreement, which came into force in 2012, the average rate on imports from America is less than 1%. Mr Trump’s insistence on talking about everything all at once adds complexity.

Both South Korea and Japan hope to offer packages that will appeal to Mr Trump’s ego at a reasonable cost. “We have to make a deal in such a way that Trump can be boastful,” says a South Korean ex-official. Ideas on the table include buying more stuff from America to reduce its trade deficit, and promoting flashy investments. Mr Han highlights a proposal to build a 1,300km gas pipeline in Alaska and a liquefaction plant to allow gas exports to Asia, which South Korean and Japanese firms could help realise. South Korea is also offering to help revive America’s dilapidated shipbuilding industry.

The talks will have to address Mr Trump’s fixation on non-tariff barriers, such as car-safety standards, quotas and sanitary requirements for farm products, drug-pricing mechanisms, and impediments to tech firms. Some of Mr Trump’s gripes are real. “We have some points on which some improvements can be made,” Mr Han says. Google Maps, for example, is hamstrung in South Korea by restrictions on the export of high-precision map data.

Even so, there are limits to what negotiators can achieve. South Korea and Japan can buy more American oil and arms, but cannot plausibly eliminate their trade surpluses with Uncle Sam. Reducing them will leave East Asian firms with less money to invest in new factories in America. Several of Mr Trump’s complaints about non-tariff barriers, such as a story about a Japanese car-safety test involving a bowling ball, are baseless.

Industrial co-operation faces big obstacles. South Korea has plenty of shipbuilding expertise to share, but shipbuilding requires lots of steel (which Mr Trump’s tariffs make more costly) and a web of suppliers and skilled labour (which America lacks). Firms will be loth to invest in shifting their supply chains without certainty. Also, to make collaboration on shipbuilding work, America should change its legal framework governing the industry, says Mr Han. He is too courteous to add that American shipbuilding is inefficient largely because it is highly protected.

South Korea’s main opposition, the Democratic Party (DP), argues that a placeholder government does not have the authority to start trade talks. But a DP president will probably pursue the same goals after the election in June: tariff relief and continuing security guarantees. Both parties may seek to extract long-sought concessions, such as a go-ahead for South Korea to reprocess or enrich spent nuclear fuel, ostensibly to make nuclear-energy generation more efficient. (It would also cut the time to build nuclear weapons.)

Voters in both South Korea and Japan are watching closely how their leaders handle Mr Trump. In Japan, where upper-house elections loom in July, Mr Ishiba has been criticised for being too soft. And Oguma Shinji, an opposition lawmaker, said what others mutter privately: negotiating with Mr Trump is like dealing with “a juvenile delinquent extorting money”. ■