US Trade Protectionism Threat May Outweigh Improving North Korea Relations

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Gary Cohn’s departure from the White House is widely seen as a win for US trade protectionism, as it could open the door for even more tariffs on foreign companies, but what would more tariffs mean for Asian countries? Analysts are weighing potential threats from US trade protectionism on China and Korea against the backdrop of the easing of tensions on the Korean Peninsula. Meanwhile, regulators from Europe are warning Washington against its protectionist policies, such as the tariffs that are expected to be placed on imported aluminum and steel.

Unfortunately, one firm thinks the bad associated with US trade protectionism will outweigh any good that might come of the talks between South and North Korea. There are also questions about whether North Korea is just trying to buy time by expressing a willingness to denuclearize.

In a note this week, Nomura economist Young Sun Kwon and team weighed the threat from US trade protectionism on the Korean economy. They believe that the negative impacts from tariffs imposed by the US will more than offset any progress that’s being made in easing tensions on the Korean Peninsula. They do expect exports to remain strong as relations with China continue to improve, pumping foreign currency into Korea.

However, they also warn that the export growth Korea has been enjoying could be derailed by US trade protectionism and global retaliation. As a result, they’re cautious on the Korean won. Because the protectionism is pulling against the easing geopolitical tensions, they continue to expect gradual rate hikes from the Bank of Korea.

The world is watching US President Donald Trump and his tariff threats, as they will impact not only Asia but the rest of the world as well. Europe, which has historically been friendly toward the US, is very unhappy with the prospect of tariffs, for obvious reasons.

European Central Bank chief Mario Draghi blasted the idea of broad-based tariffs, saying that they’re dangerous and sounding the alarm over US trade protectionism policies. He noted that if Washington issues tariffs on goods imported from its friends, then it basically makes enemies of the entire world. The German government also warned Washington this week that issuing tariffs would be the “wrong path.”

While the Nomura team does agree that the latest signs of progress in diplomacy with North Korea are a good thing, they question just how serious the North is about denuclearization. They do expect the progress to “reduce miscalculation risks” and believe it lowers “the probability of a military confrontation between the US and North Korea” until late next month at least. That’s when North Korea is planning on meeting with South Korea for talks.

This week, officials from North Korea met with officials from the South and agreed to schedule a summit for late next month. The North also said it would be willing to discuss denuclearization and hold talks with the US. The nation agreed to pause its nuclear testing while talks are ongoing.

However, the Nomura team questions just how sincere North Korea is in denuclearizing. They note that Pyongyang and the Kim family have often used the promise of negotiations in the past to simply buy more time for its nuclear program and also get relief from sanctions. North Korea even agreed to end its nuclear weapons program during a round of six-party talks that started in 2003. However, hope for a resolution was shattered when the North launched a satellite which the world thought was a missile test.

On the other hand, they point out that there haven’t been “serious” talks since 2009 when the last major round of negotiations broke down, so they do see a possibility of the US and North Korea coming to the bargaining table at last. US Secretary of State Rex Tillerson said today during a news conference that North Korea is sending “potentially positive signals” toward Washington, although they’re still “a long way” from any direct talks about denuclearization.

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