Korea dangers tapping international reserves to fund U.S. funding

 
Lee Ha-kyung
 
The creator is a senior columnist on the JoongAng Ilbo. 
 
 
 
Heavyweight boxer Mike Tyson as soon as stated, “Everybody has a plan till they get punched within the mouth.” New York Occasions columnist Thomas Friedman borrowed the road to criticize U.S. President Donald Trump’s rhetoric in a column titled “Trump’s Scorching Mess of a China Coverage.” The Wall Road Journal wrote, “Beijing hit again, and it’s exhausting to see what the US gained from tariffs.”
 

Korean President Lee Jae Myung, rights, toasts U.S. President Donald Trump throughout a dinner occasion at a resort in Gyeongju, North Gyeongsang, on Oct. 29, following their bilateral summit. [JOINT PRESS CORPS]

 
China has been making ready rigorously for its financial confrontation with the US. Chinese language engineers linked 384 domestically developed low-performance AI chips to construct a complicated server akin to Nvidia’s. Regardless of U.S. sanctions, China has achieved technological self-reliance. Its exports to the US fell 16.8 p.c this yr, however general exports grew 6.1 p.c. The USA, in the meantime, depends on Chinese language uncommon earths for protection and superior manufacturing. Even with a full-scale effort just like the Manhattan Venture, it will take 5 to seven years to construct a dependable provide chain. When China hinted at proscribing uncommon earth exports, Trump backed down, saying cooperation might make America “larger, higher, stronger than ever earlier than.” Nonetheless, Washington is pressuring its allies to shoulder the price of its commerce and financial deficits. Whether or not that is honest observe is a query price asking.
 

President Lee Jae Myung presents U.S. President Donald Trump with the Grand Order of Mugunghwa and a mannequin of the Gold Crown of Cheonmachong through the official Korea-U.S. welcome ceremony held on the Gyeongju Nationwide Museum in North Gyeongsang on Oct. 29. [JOINT PRESS CORPS]

 
Korea prevented the worst final result in its tariff negotiations with the Trump administration, however the state of affairs calls for vigilance. When the primary settlement was introduced on July 1, the federal government stated solely as much as 5 p.c — about $17.5 billion — of the agreed $350 billion in funding could be in money, with the remaining coming in loans and ensures. The second spherical of negotiations in October revealed a distinct image: Korea should ship as a lot as $20 billion in money yearly for 10 years, totaling $200 billion. A separate $150 billion will go to the MASGA shipbuilding cooperation mission. Presidential coverage chief Kim Yong-beom stated “industrial rationality” was the highest precedence, however the remaining resolution lies with the U.S. funding committee chaired by Commerce Secretary Howard Lutnick, a former Wall Road forex dealer. If choices are made for political causes, the implications for the Korean financial system might be extreme.
 
In 2013, Korea’s international direct funding in the US totaled $21.5 billion. Underneath the present plan, greater than $40 billion will circulation yearly into the U.S. financial system. Questions come up over the affect on home funding, employment and financial and financial stability. Overseas reserves function emergency funds to stabilize the forex and tackle balance-of-payments crises. They’ve by no means been used for large-scale abroad direct funding. The federal government says reserves, now at $420 billion, can be maintained by curiosity earnings, dividends and exterior financing if wanted.
 
 
However the potential for a international change disaster, nevertheless unlikely, have to be thought of. Japan ensured the phrase “respect for each nations’ home legal guidelines” was included in its settlement with the US. The presidential workplace argues that the Korea-U.S. memorandum of understanding just isn’t a treaty and doesn’t require parliamentary ratification. That could be a harmful declare. Underneath the Structure, the Nationwide Meeting holds the ability to evaluate and approve spending. The Commerce Treaty Act requires submission of funding plans and measures to guard home industries. The prime minister and finance minister have already acknowledged the necessity for parliamentary consent. If tariffs proceed to hurt Korean corporations, bipartisan approval might proceed swiftly.
 
Huge money funding in the US could create jobs there however might gas unemployment in Korea. If international change administration falters, the financial system might deteriorate quickly. Alliances have to be based mostly on cooperation, however Korea should assert its nationwide curiosity when needed. Like China’s uncommon earth leverage, Korea additionally wants a decisive bargaining chip.
 

Nvidia CEO Jensen Huang, Samsung Electronics Government Chairman Lee Jae-yong and Hyundai Motor Group Government Chair Euisun Chung attend an occasion at Coex in southern Seoul celebrating the twenty fifth anniversary of Nvidia’s GeForce GPU on Oct. 30. [JOINT PRESS CORPS]

 
Nvidia CEO Jensen Huang, who agreed to provide 260,000 GPUs to Korea, stated, “The USA has robust software program however weak manufacturing. Europe has robust manufacturing however weak software program. Korea has each.” Korea’s power lies in its corporations. Leaders like Lee Byung-chull, Lee Kun-hee, and Chung Ju-yung constructed world-class semiconductor, shipbuilding and automotive industries by taking daring dangers. It’s time to revive that entrepreneurial “animal spirit” with daring deregulation and industrial coverage.
 
China is rising at a staggering tempo. The USA nonetheless dominates in superior know-how and army energy. For Korea to outlive with out being sidelined, it should strengthen its capabilities and safe strategic autonomy. Solely then can huge investments in the US be mutually helpful. The nation can not danger deindustrialization or a second IMF-style disaster.