With Donald Trump being confirmed as the Republican presidential candidate, viewers are turning to the potential impact on the South Korean economy if Trump secures his second term as he is also leading in the U.S. Favorable Ratings over current President Joe Biden.
There are concerns about potential spikes in oil prices and the repeat of the supply chain disruptions. This is because Trump, with his America-first policies, is likely to ignore the wars in Ukraine and the Middle East. Extreme nationalism could potentially harm South Korea’s export front, which achieved record-breaking performances last year.
According to US politics on the 7th, a “return match” has been certain between former President Trump and President Biden in the presidential election to be held in November, as they have been confirmed as Republican and Democratic candidates respectively.
The political media The Hill reported that as of today, former President Trump is leading President Biden by 2.1 points with an average support rate of 45.6%, based on the results of 591 nationwide public opinion polls.
Should Trump return to power, there’s a likelihood of a resurgence in American-centric policies. This may potentially heighten geopolitical risks in Eastern Europe and the Middle East.
The ongoing Russian-Ukrainian war, now in its third year, is expected to turn in Russia’s favor as Republican blocks a $60.1 billion support plan for Ukraine, which could completely cut off support for Ukraine. Predictions also suggest that the conflict between Israel and Hamas in the Middle East could intensify as it is essentially being ignored.
As a result, any increase in oil prices coupled with worsening supply chain disruptions could directly impact the South Korean economy, which is highly dependent on external factors. South Korea’s import proportion of Middle Eastern crude oil fell from 85.9% in 2016 to 59.8% in 2021, but it is on the rise again due to the outbreak of the Russo-Ukrainian war in 2022.
The price of Dubai crude oil, which is in high demand in Korea, is currently trading between $82 and $84 per barrel. Rising oil prices could further stimulate the still unstable prices, dampening economic recovery and eroding the export competitiveness of Korea.
There is also a possibility of a recurrence of the supply chain crisis that has put the world on edge sparked by the Russo-Ukrainian war. In particular, if the pressure on China is heightened under the revival of the Trump administration, the economic polarization between the camps could solidify, and South Korea, which is an export-driven economy, could be the most affected.
South Korean exports to the U.S., which have been a driving force behind the recent export recovery, are also likely to be hit hard by the revival of Trump-style protectionism. Last year, South Korea’s exports to the U.S. recorded an all-time high of $115.72 billion, a 5.4% increase from the previous year. The U.S. has rebounded to become the second-largest export country after China for the first time in 18 years. The trade surplus was $44.5 billion, the highest among the top 10 countries.
Last month, South Korea’s exports to the U.S. exceeded China’s exports ($9.65 billion) by reaching $9.8 billion, a 9.0% increase from the previous year, marking the highest level since February. Exports to the U.S. have been increasing for seven consecutive months. This is primarily attributed to the surge in semiconductor exports caused by the rapid increase in demand for information and communication technology (ICT) such as artificial intelligence (AI).
Former President Trump has announced through his re-election pledge collection “Agenda 47” that he will introduce a universal basic tariff of about 10%. He pointed out South Korea’s automotive and parts, semiconductor industries, etc. as one of the main causes of the U.S. trade deficit approaching $1 trillion. This announcement could serve as a warning sign for major exporters to the U.S. in Korea.
In the case of the domestic stock market, there are conflicting views: optimism and pessimism. Some argue that the Trump administration will maintain a “3 low” principle in areas directly related to people’s lives, such as low prices, low-interest rates, and low oil prices, which could potentially buoy the stock market.
Cho Yeon-ju, a researcher at NH Investment & Securities, predicts that “If Trump is re-elected, the top priority of economic policy will be price stabilization,” and added, “Pressure for a low-interest rate turnaround will increase through the replacement of the Federal Reserve (Fed) chairman.” She continued, “In the Korean stock market, semiconductor stocks related to AI and growth stocks are the beneficiaries,” and “Internet and healthcare sectors are positive.”
However, there is a counter-argument that a surge in nationalism and protectionism could negatively impact Korean export stocks such as automobiles and secondary batteries. The growth momentum of policy beneficiaries in the fields of renewable energy and climate crisis response could also be weakened.
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