Moon enlists Chaebol execs to disarm Trump’s trade threat

Bloomberg

Since taking office in January, President Donald Trump has pulled the US out of the Trans-Pacific Partnership and started renegotiation of the North American Free Trade Agreement. The challenge for South Korean President Moon Jae-in, who heads to Washington this week, is to keep Trump away from another deal the
billionaire dislikes: their 2012 free-trade pact.
The summit between Trump and Moon, scheduled for June 29 and 30, comes at a time of rising trade tensions between the two countries. Trump has derided the Korea-U.S. free-trade agreement, known as Korus, as a “horrible deal” and “a one-way street.” His administration has targeted Korean companies with new penalties and investigations.
To help fend off criticism, Moon is taking reinforcements from Korea’s most powerful chaebol, the conglomerates that dominate its economy. Executives from Samsung Electronics Co. and Hyundai Motor Co. are among the 52-person business delegation traveling to the U.S. to help convince a skeptical Trump that free trade with South Korea is to the benefit of both countries. They’re expected to take the opportunity to announce plans for new investments or deals that help create American jobs.
Korean companies may be borrowing a page from the playbook of other Asian firms in countries that Trump has criticized for their trade imbalances, according to Justin Jimenez, a Bloomberg Intelligence economist in Hong Kong. Masayoshi Son of Japan’s SoftBank Group Corp. and Jack Ma, China’s richest man, have both met with Trump and pledged to create jobs in the U.S.
While Korea’s trade surplus with the U.S. has doubled since before Korus took effect, officials in Seoul emphasize investment in the U.S. has expanded at a record pace. Direct investment rose 143 percent in the first quarter of this year from the same period in 2016, according to the Export-Import Bank of Korea.
Moon’s government is hopeful the summit with Trump will focus on security issues related to North Korea’s nuclear program rather than trade.
This is “the most urgent task,” Chung Eui-yong, the head of South Korea’s national security council, told reporters this week.

Still, it will be difficult to keep the leaders from addressing Korus, said Deborah Elms, executive director of the Asian Trade Centre, a consultancy in Singapore. “Trump will have trade on the agenda.”
That’s where the chaebol executives can help. Kwon Oh-hyun, vice-chairman of Samsung Electronics, will join Moon on the trip, according to the Korea Chamber of Commerce and Industry. Samsung declined to comment on whether it plans to announce any investment in the U.S. during the visit, referring instead to a March statement that it was in discussions related to opening a new factory for home appliances.

Chung Eui-sun, vice chairman of Hyundai Motor, will also be there. Hyundai and affiliate Kia Motors Corp. announced plans in January to spend $3.1 billion in the U.S. in the next five years, about 50 percent more than the previous five-year period.

Grand Tower

Another chaebol executive in Moon’s delegation is Cho Yang-ho, chairman of Korean Air Lines Co. and its affiliate, the Hanjin Group. Korean Air and Delta Air Lines Inc., which unveiled plans in March to form a joint venture, announced on June 23 they had reached final agreement on the deal to share costs and revenue on flights in the Americas and Asia.

On the same day as the Delta announcement, Hanjin held an opening ceremony for its 73-story Wilshire Grand Center in Los Angeles, where Cho said: “This is a good example of foreign investment emphasized by President Trump.”

Yet even if they keep Trump quiet for now, the Koreans will face increasing scrutiny on trade. He signed an executive order earlier this year calling for a review of “trade abuse” by major trading partners. Korean officials are concerned the country could figure prominently in the report, which is due as the summit starts.

John Ferriola, CEO of Nucor Corp., the biggest steelmaker in the U.S., wants the Trump administration to restrict steel imports to a 10 to 15 percent share of the market, down from an estimated share of about 27 percent this year. In an interview with Bloomberg Television, Ferriola said a Department of Commerce investigation probably will find that imports pose a threat to national security.

“I’m very encouraged by their determination to make sure that we have a sustainable and strong steel industry,” said Ferriola, speaking of Trump and Commerce Secretary Wilbur Ross.

Korean Finance Minister Kim Dong-yeon said in a Bloomberg Television interview this month that he’s concerned by any type of protectionism.

“There are mutual benefits that the two countries have enjoyed out of the FTA,” Kim said. “The benefits have been reciprocal so far.”

Anti-Dumping

Trump’s administration has already increased pressure on Korean exporters. In April it imposed new anti-dumping duties on Korean steel and this month launched a probe of Samsung Electronics and LG Electronics Inc. washing machines after Whirlpool Corp. –from Michigan, a Rust Belt state that helped elect Trump — called them “serial violators of U.S. trade laws.”

LG said Whirlpool had “once again decided to seek government protection rather than compete in the marketplace” and that it would “vigorously defend this case in the best interests of the tens of millions of American consumers.” Samsung said it rejected the notion that imports of its washing machines harmed Whirlpool.

Moon might be able to win a trade reprieve, according to Asian Trade Centre’s Elms, by arguing that U.S. dissatisfaction with Korus is the result of poor handling of matters by previous administrations. Moon could argue that his government needs time to make things right, Elms said.

“They will do what they can to fend off the criticism,” Elms said. “They will probably argue that this Korean administration will do things differently and that the U.S. should give them space to show that they can deliver.”