Donald Trump, President of the United States, has said that the tariff policy for his second term (2025-2028) is not about trade disputes but a strategy to reshape the global economic order sustained by the trade and fiscal deficits of the dollar-hegemony country, the United States.
On April 2 (local time), regarding the mutual tariffs disclosed by Donald Trump, President of the United States, which he referred to as 'Liberation Day,' Kim Yong-beom, head of Hashed Open Research, evaluated it as an 'attempt at structural transformation through tariffs and asset controls.' Kim, who served as the Vice Minister of the Ministry of Economy and Finance, noted in an interview on April 22 that 'the United States has a strong will to correct the global imbalances caused by China's export-centered model' and added that 'allied countries that record trade surpluses with the United States are not exempt from tariff pressure.'
Kim noted that 'the return of tariff barriers and the restructuring of supply chains in Korea, a small open economy centered on exports, is a regime transition that presents high inflation and high interest rates as the default.' He pointed out that countries like Korea, which have household liabilities twice the gross domestic product (GDP) and rely on liabilities in the asset market and households, will face a very unfavorable macroeconomic environment.
He claimed that in this transitional period, the Korean economy should pursue productivity-centered economic structural reforms and the expansion of social safety nets through finance simultaneously. He emphasized that 'to transition to a productivity-centered economic structure, the low productivity structure centered on micro-businesses and non-regular workers must be reorganized' and that 'the role of government finances should be strengthened to guide long-term structural reforms beyond short-term economic response measures.' He added that 'finance should act as a buffer for restructuring and as a catalyst for reform.'
He also stated that 'structural reform is not sufficient with only market principles, and social solidarity, adjustment, and compromise must be prerequisites' and emphasized the need for a balanced reform that designs inclusivity in welfare and employment while pursuing results and efficiency. He added that 'in order for financial expansion to have legitimacy, national consensus and social agreement, including institutional reforms, are essential.'
The U.S.-China conflict has intensified in the second term of the Trump administration compared to the first term.
The U.S. fiscal deficit has grown to an unmanageable level due to the COVID-19 pandemic, the Ukraine-Russia war, and China has also lost room for concessions due to its real estate crisis. Consequently, the clash between the two countries has escalated into a structural and comprehensive confrontation. It is unlikely that the World Trade Organization (WTO) free trade regime can be maintained, and there is a high possibility that strategic asset controls and geopolitically linked trade will establish a new order.
The United States is rolling out a digital dollar strategy utilizing stablecoins as it seeks to shed its role as a reserve currency. The direction of the restructuring of the global financial order is.
The dollar stablecoin is emerging as a new reserve asset in the digital age. The United States is attempting to utilize this as an extension of digital dollars even amid fiscal crises, striving to reshape the monetary order. Stablecoins are establishing themselves as digital-centric currencies that circulate across borders, and the United States is pursuing dual goals of maintaining the dollar system and expanding demand for government bonds through this.
How should Korea respond while accumulating foreign exchange reserves as dollar assets?
Korea should proactively respond to the digital currency order by reviewing the issuance of the won stablecoin along with diversifying foreign exchange reserve management. Since stablecoins are highly likely to establish themselves as digital international currencies, a strategy that combines institutional arrangement and global cooperation is necessary.
Korea is marking productivity slowdown as a structural weakness.
The productivity slowdown stems from the entrenchment of low productivity labor centered on micro-businesses and non-regular workers. Following the foreign exchange crisis, a significant influx of self-employed individuals has locked in a red ocean structure, and the lack of a social safety net has perpetuated inefficiency. In particular, the public guarantees for insolvent companies have prolonged, preventing the natural market exit mechanism from functioning. This has been an inevitable result of policy finance effectively replacing the social safety net.
In a new order that Trump aims to reshape, where should the redesign of the Korean economy begin?
First and foremost, there needs to be a transition to a productivity-centered economic structure. To accomplish this, the low productivity structure centered on micro-businesses and non-regular workers must be reorganized, and structural reform tasks such as pension reform, extension of retirement age, and labor market flexibility must be pursued concurrently. It is also crucial to enhance the effectiveness of the welfare system, and finance should be designed in a way that intersects with structural reforms rather than just short-term expansions. Policy capabilities should be established to proactively respond to digital transitions and changes in the global monetary order.
What role should the government play in overcoming productivity slowdown?
Korea has a structurally insufficient response capacity as the role of government finance is small compared to the size of the economy. Until now, the function of finance as a social safety net has provided only minimal safety nets like short-term jobs or jobs for seniors. It should not stop there but expand to support old-age income security and re-employment for the elderly. The government finance must also intervene actively to resolve the surplus of self-employed individuals and improve the dual structure of the labor market.
What are your thoughts on structural reform measures to enhance productivity through performance-based compensation systems?
Labor market-wide structural reforms such as pension reform, extension of retirement age, and the introduction of a performance-based wage system must be carried out simultaneously. This is not merely a change in laws and institutions but requires a change in awareness and behavior across society. National persuasion and social consensus are essential. For instance, instead of abruptly stopping support for low productivity small and medium-sized enterprises that used to be supported by public guarantees, opportunities for transition and safety nets should be provided while gradually inducing restructuring. Structural reform cannot be left solely to market principles; social solidarity and adjustment are essential.
How should we find solutions to the weakening technological competitiveness of core industries such as semiconductors?
Semiconductors are a key industry that impacts employment, investment, and tax revenue. In 2023, the semiconductor deficit and corporate tax shortfall indicated structural risks. Memory should maintain comparative advantages, while system semiconductors need to be nurtured as strategic industries. Defense industry must also be elevated as a strategic industry, and across the manufacturing sector, a transition to service-type models incorporating artificial intelligence (AI) and humanoids is necessary. Fortunately, Hyundai Motor has made achievements that even Toyota would envy through technological and design innovations, entering the global top three. Such innovative examples should be spread.
There are many criticisms that corporate governance that harms shareholder value distorts the performance reward system of the capital market. What approaches are needed for corporate governance reform?
Japan naturally weakened family management through bubble collapse and post-World War II reforms, whereas Korea still has a strong inertia in family management-oriented governance.
Nevertheless, as the market expectations rise, there could be an increase in attempts at governance transitions through mergers and acquisitions (M&A) like the Korea Zinc incident. A single solution is not feasible. Discussions about Korea-style corporate governance will become more active in the future. Various issues regarding value-up and inheritance tax will be raised. In the process, it seems possible to find gradual reform measures considering path dependency and industry structure. Various methods such as board-centered management, competition in the capital market, and activating M&A are expected to be discussed.
Plus Point
Three strategies suggested by the Korea Development Institute (KDI) for 'enhancing productivity'
The Korea Development Institute (KDI), a think tank for government economic policies, pointed out in its report 'Reforms to Enhance Productivity in the Korean Economy' published in December 2024 that the steep decline in total factor productivity (TFP) is a structural vulnerability of the Korean economy and proposed three strategies to overcome it.
First, it emphasized the need to reduce distortions in the allocation of labor and capital to achieve reasonable distribution of production factors and to restore market-based resource allocation functions. Regulatory reform, labor market flexibility, and modernization of labor-management relations are necessary, and the long-term support practices of policy finance and subsidies for low productivity corporations should also be improved. Addressing the blind spots in employment insurance and expanding a job-oriented personnel system were also presented as key tasks.
Second, it suggested strengthening creative innovation through restoring social mobility. The autonomy and diversity of the education system must be expanded, and the educational gap between regions and social classes must be reduced. Research and development (R&D) should shift to private-led initiatives, budget allocation centered on performance should be strengthened, and the promotion of startups to increase the ripple effects of technological innovation is also necessary.
Third, it proposed that improving the fairness of transactions among corporations and enhancing corporate governance for large enterprises should go hand in hand to build a robust social foundation. This is a key pillar for restoring social trust and strengthening the basis for cooperation within the economy, and it was also mentioned that fiscal decentralization should be advanced in a direction that enhances the policy autonomy and accountability of local governments.