[Op-Ed] We Must Guard Against the Spread of Protectionism

Protectionism is rapidly spreading, centering on the United States and China. The Biden administration has announced that it will impose high tariffs on certain imports, including Chinese electric vehicles and batteries, and U.S. presidential candidate Donald Trump has also signaled sweeping tariff increases on China. In response, China has revised its tariff law and taken preemptive measures that would allow it to retaliate with “retaliatory tariffs,” deepening the tariff war.

Protectionism burdens not only trading partners but also the country that implements it. This policy raises the prices of imported goods, increasing the burden on consumers, and weak consumption of imports also affects consumption of other goods. In addition, under protectionism, innovation is neglected, external competitiveness weakens, and inefficient production takes place. Protectionism that begins in one country spreads to others, causing a decline in trade volume and a broader economic slowdown.

The Smoot-Hawley Tariff Act, implemented in the United States in 1930, is a representative case that clearly revealed the side effects of protectionism. As the Great Depression unfolded, the number of unemployed reached 15 million, and the United States imposed high tariffs on imports. The U.S. government expected this measure to help curb imports and protect jobs, but the tariff law ultimately led to retaliatory tariffs from other countries, worsening the situation. Between 1929 and 1933, U.S. imports and exports fell by more than 60 percent, world trade declined by 66 percent, and the unemployment rate surged from 7.8 percent to 25.1 percent.

South Korea is vulnerable to protectionism. In 2022, South Korea’s trade volume as a share of GDP stood at 84.56 percent, indicating that international trade is highly active. As the recent protectionist trend has developed around U.S.-China tensions, and given that both countries are major export destinations for South Korea, the economic repercussions will be considerable. Indeed, during the Trump administration, U.S. tariff hikes on China reduced China’s exports to the United States, which in turn led to a decline in South Korea’s exports to China.

Our government should pursue free trade. When the global financial crisis occurred, the Lee Myung-bak administration set a precedent by leading international cooperation to prevent protectionism. We should make active use of our international standing and diplomatic capabilities to encourage other countries toward free trade.

We must also work to develop export markets. The EU is striving to conclude FTAs with South America in preparation for a new Trump administration. We, too, should further expand trade with emerging markets such as Southeast Asia and India. Through this, we must offset any decline in exports caused by U.S.-China tensions and, separately, achieve economic growth through increased exports.

This is the time for South Korea to turn this crisis into an opportunity and emerge as a stronger export nation with solid fundamentals. The spread of protectionism is a challenge, but it also contains the possibility of creating new opportunities. By raising awareness of the importance of free trade and strengthening international cooperation, the government must lay the foundation for stable growth even amid uncertainty in the global economy. Through such a free-trade strategy, I hope South Korea will continue its economic prosperity even amid tensions in international trade.

Jihu Shim, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] 보호무역 확산 경계해야

Author: Ji-hu Sim

Date: 2024-12-02

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=3&idx=27093