One of the biggest issues of the year is the Trump administration’s tariffs. First of all, I think I’ve talked about universal tariffs several times. As the ripple effect is so strong… And as other countries are already fighting against universal tariffs… You’re going to find Trump quite perplexed by the strong dollar that’s been created. 20% max… It looks like tariffs will be imposed at a much lower level than that… Lower tariff rates are expected to apply to countries that preemptively complete negotiations with the Trump administration.
A lot of people focus on universal tariffs, but they don’t really raise a big issue about high tariffs on China. Maybe it’s just hitting China. It’s not affecting us right away like universal tariffs. But… Wouldn’t this world be connected like this? Wouldn’t there be something that would hurt us if it had a big negative impact on the Chinese economy? Let’s think about it for a moment.
If China is subject to high tariffs, exports to the U.S. will be quite difficult first. Then, as exports to the U.S. become more difficult, we will reduce the purchase of materials or intermediate goods needed to manufacture such exports. Of course, the proportion has decreased significantly recently, but exports of intermediate goods from Korea to China remain at a certain level. There is a possibility that such intermediate goods will also be damaged.
And you can see it from this perspective. If China’s export to the U.S. becomes difficult, there’s going to be a huge surplus of Chinese-made goods. So we’re going to sell this somewhere. We’re going to try to export what we can’t digest in China to the U.S., and now we’re going to export it to other countries. Wouldn’t that lead to very low dumping? Wouldn’t that lead to a very disadvantageous position in the export race with China? So the eurozone is talking about this. It quotes the ECB’s chief hawkish commentator, Class Note.
“The Dutch central bank governor, Klas Knott, was concerned that the trade war could bring China’s deflation into Europe. If the U.S. starts a trade war by imposing new tariffs, China is likely to sell goods to Europe at lower and lower prices,” Knott, who is classified as a hawkish member of the European Central Bank’s (ECB) policy committee, told local media on the 30th (local time).
“We are already seeing it in the steel market,” he said. “China is exporting deflation to Europe.” “There is a very high possibility of a trade war,” he said. “This is bad for an open economy like the Netherlands.” (Yonhap Infomax, 24.12.30)
My note brother has a lot of concerns. He says that China can export deflation to Europe in a scary way. If the U.S. imposes tariffs on China, Chinese goods that have not been exported to the U.S. will be destined for Europe in large numbers, European companies will fall behind in price competitiveness, and Chinese cheap goods will flood in, increasing deflationary pressure in the eurozone. To prevent this, the first thing that should happen is that the eurozone will cut its benchmark interest rate and try to keep the consumer economy as much as possible… Number two would be to accept a quick weakening of the euro along with a cut in the benchmark interest rate. We could use the weak euro to wage a currency war on cheap Chinese goods. In this context, we also need to refer to the comments of the Governor of the Central Bank of Greece, another member of the ECB.
Regarding U.S. President-elect Donald Trump’s tariff policy, Stournaras said, “U.S. inflation will rise,” adding, “If inflation rises, the Fed will clash with the Fed first because it cannot keep lowering interest rates.”
“If China is imposed with 60% tariffs, there will be a huge devaluation of the yuan to compensate for this,” he said, adding, “We will face very large global uncertainties.” (Yonhap Max, 25.1.3)
Yes. If China is hit with high tariffs, it will respond with a devaluation of the yuan… That would increase China’s export competitiveness. Cheap dumping products are pouring out with the yuan depreciating. Wouldn’t that make the eurozone economy really hard? Then, as I said before, I think it’s better to create and respond to the weakening of the euro by lowering the benchmark interest rate. The hawkish Note and the dove Stournaras are discussing the need for a rate cut in unison. The ECB’s rate cut is expected to continue this year. It would point to a weakening of the euro. And such a weakening of the euro would be a factor in increasing pressure on the other side to strengthen the dollar. Then it would be a strong global dollar… Won’t the weak yuan, the weak euro, and the strong global dollar put upward pressure on the Korean dollar exchange rate? One more… Above, I wrote the impact of high tariffs on China on the eurozone, citing the European Central Bank. Even if we change the eurozone to Korea… It doesn’t seem to be a big problem…… T.T Yes… Trump’s high tariffs on China seem so scary.
Yes, the direct pressure from Trump’s universal tariffs is great, but the impact of high tariffs on China is also not easy. More low-priced products from China that cannot reach the U.S. are pouring out… And it is also burdensome to put upward pressure on the dollar exchange rate along with the strong dollar. An unstable exchange rate could put a brake on the Bank of Korea’s stance on lowering the benchmark interest rate. I quote Lee Soo-hyung, a member of the Monetary Policy Committee, on January 2nd. It’s a little long, but it’s the highlight of the day. I hope you read it carefully.
Lee Soo-hyung, a member of the Bank of Korea’s Monetary Policy Committee, said, “The Bank of Korea’s three goals of inflation, financial stability, and economic growth mainly focus on inflation and financial stability when they conflict with each other.” In an interview with CNBC on the 2nd, Lee said, “The Bank of Korea’s legal obligation is to ensure that inflation remains at the target level, and when it is satisfied, it focuses on financial stability. If these two conditions are met, the economic growth rate will be achieved.”