South Korean and Japanese officials are putting on their politest smiles and heading to Washington. Akazawa Ryosei, the minister leading negotiations for Japan, visited the White House on April 16th and donned a MAGA hat. A week later, South Korea’s finance and trade ministers met their American counterparts. Talks with both countries will continue this week.
South Korea’s task is made harder by political turmoil. Mr Han, a mild-mannered unelected technocrat, was thrust into the presidency and forced to lead the country through a critical juncture after his boss, Yoon Suk Yeol, was impeached for declaring martial law last December. A fresh presidential election is due on June 3rd. Lee Jae-myung, the left-wing opposition leader, is expected to win. Some conservatives would like Mr Han to run; he declines to answer questions about his electoral plans. Meanwhile, he must try to avert calamity with America. He projected calm in an interview in Seoul on April 22nd. South Korea is sure that any problems can be solved in “a rather non-conflicting way”, he says.
Still, he has no illusions about the stakes. Mr Trump has threatened in the past to withdraw some of America’s troops from South Korea. That would leave it far more vulnerable to threats from North Korea. The presence of American forces is “absolutely critical for us”, Mr Han says. To deter its despotic, nuclear-armed neighbour, South Korea also relies upon America’s nuclear umbrella. No one is sure whether Mr Trump intends to preserve this or fold it up and walk away, destabilising the region and creating an incentive for South Korea and even Japan to consider acquiring their own nuclear deterrents. “That’s why we must continue to work with America and put on a brave face, no matter who is in the White House,” says Ahn Ho-young, a former South Korean ambassador to America.
While straining not to alienate an essential (but increasingly unreliable) ally, South Korea and Japan are trying to limit the tariff trauma. Both are trade-oriented economies that export loads to America. Mr Trump has imposed “sectoral” tariffs of 25% on steel, aluminium and automobiles, which came into effect at the start of March and April. He has also announced—and then suspended for 90 days—so-called reciprocal tariffs of 25% on all Korean goods and 24% on Japanese ones. His tariffs on other countries, such as China, will add to Japan and South Korea’s pain by disrupting their supply chains. Mr Han speaks of the tariffs as “shock therapy”; Ishiba Shigeru, Japan’s prime minister, says they have caused a “national crisis”.
The economic pain for both South Korea and Japan could be more severe than for most countries. On April 22nd the IMF cut South Korea’s growth forecast for this year to 1%, down from a forecast of 2% in January; Japan’s growth forecast fell by 0.5 percentage points. (The global growth forecast shrank by 0.5 percentage points.) If America imposed a universal 25% tariff on all goods, it would reduce South Korea’s GDP by 0.8 percentage points, reckons Park Chong Hoon of Standard Chartered, a bank; the Nomura Research Institute, a Japanese think-tank, also predicts a 0.8 percentage point reduction of Japanese GDP if all of Mr Trump’s tariffs remain in place.
The car and steel tariffs have already caused serious harm. “It’s very painful,” Mr Han acknowledges. And the uncertainty about what Mr Trump will do next is equally worrying. Investors and consumers are putting off spending decisions until the picture is clearer. Through the first 20 days of April South Korea’s exports shrank 5% compared with the same period last year; those to America fell 14%.
Securing a reprieve will not be easy. The old trade rules no longer apply. Both countries have trade agreements with America, which Mr Trump’s new tariffs appear to violate, but fussing about this will change nothing. Mr Trump’s “reciprocal” tariffs are based on the spurious claim that South Korea charges effective tariffs of 50% on American goods; South Korea’s government in turn notes that under the United States-Korea Free Trade Agreement, which came into force in 2012, the average tariff rate on imports from America is less than 1%. Meanwhile, Mr Trump’s insistence on talking about everything all at once adds complexity. Japan’s intergovernmental task force for the negotiations has ballooned to include 47 senior officials from a host of different ministries and agencies.
Both South Korea and Japan hope to offer packages that will appeal to Mr Trump’s ego at a reasonable cost. “We have to make a deal in such a way that Trump can be boastful,” says a South Korean ex-official. Ideas on the table include buying more stuff from America to reduce its trade deficit, and promoting flashy investments. Mr Han highlights a proposed project to build a 1,300km gas pipeline in Alaska and a liquefaction plant to allow gas exports to Asia, which South Korean and Japanese firms could help realise. South Korea is also offering to help revive America’s dilapidated shipbuilding industry.
The talks will have to address Mr Trump’s fixation on non-tariff barriers, such as car-safety standards, quotas and sanitary requirements for farm products, drug-pricing mechanisms, and impediments to tech firms. Some of Mr Trump’s gripes are real and can be tackled. “We have some points on which some improvements can be made,” Mr Han says. Google Maps, for example, is hamstrung in South Korea due to restrictions on the export of high-precision map data.
Even so, there are limits to what negotiators can achieve. South Korea and Japan can buy more American oil and arms, but they cannot plausibly eliminate their trade surpluses with Uncle Sam. Reducing trade surpluses will leave East Asian firms with less money to invest in new factories in America. Several of Mr Trump’s complaints about non-tariff barriers, such as a story about a Japanese car-safety test involving a bowling ball, are baseless.
Industrial co-operation faces big obstacles. South Korea has plenty of shipbuilding expertise to share, but shipbuilding requires lots of steel (which Mr Trump’s tariffs make more costly) and a web of suppliers and skilled labour (which America lacks). Firms will be loth to invest in shifting their supply chains without certainty, which is nonexistent. Also, to make collaboration on shipbuilding work, America “should change” its legal framework governing the industry, Mr Han says. He is too courteous to add that American shipbuilding is inefficient largely because it is one of the country’s most protected industries.
South Korea’s main opposition, the Democratic Party (DP), is undermining Mr Han with a specious accusation that he is overstepping his authority by starting trade talks while only acting president. However, a DP president will probably pursue the same goals after the election in June: tariff relief and a continuation of security guarantees. Both parties may seek to extract some long-sought concessions, such as a go-ahead for South Korea to reprocess or enrich spent nuclear fuel, ostensibly to make nuclear energy generation more efficient. (This would also cut the time it would take to build nuclear weapons.)
Meanwhile voters in both South Korea and Japan are watching closely how their leaders handle Mr Trump’s bullying. In Japan, where upper-house elections loom in July, Mr Ishiba has been criticised for being too soft. And Oguma Shinji, an opposition lawmaker, said out loud what others mutter privately: negotiating with the Trump administration is like dealing with “a juvenile delinquent extorting money”.
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