□ Many expect that the trade war between the US and China will persist, and East Asia’s global value chains will undergo a significant transformation in the mid- to long-term, as China’s contracts while that of ASEAN expands. Accordingly, to effec-tively respond to the coming changes, Korea should adopt proactive strategies to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and attract quality FDI in an effort to realize sustainable growth.
- Biden’s trade policies highlight fair trade, which indicates that the US will maintain its hardline stance toward China.
- The policies of the new administration could drive the transformation of East Asia’s GVCs.
- It is too early to tell if China’s trade will remain sluggish. But, from a midto long-term perspective, East Asia’s GVCs will likely undergo some change due to China’s trade depression and diversion.
- Statistics confirm the structural changes in China which could diminish its share of East Asia’s GVCs.
- The US strategy of remodelling GVCs around itself, particularly in future technologies like 5G and AI, will likely have a huge impact on East Asia’s GVCs, especially in the electric/ electronic industry which accounts for 25% of China’s imports and exports.
- The CPTPP’s rules of origin could change the GVCs in East Asia via the trade diversion effect.
- Concerns over sensitive issues related to the CPTPP, such as market openness, policy loans, and fisheries subsidies are largely based on weak arguments.
- The longer Korea remains a non-member of the CPTPP, the bigger the decline will be in its exports. Accordingly, Korea must at least join the agreement before China.
- Attracting prime FDIs can serve as an effective policy to raise the investment necessary for sustainable growth.
- The US-China trade war presents Korea with an opportunity to attract more high-qualtiy FDIs.
- To take advantage of this opportunity, concession schedules in the Korea-China FTA should be pushed up.
- In the Korea-China FTA, the share of products subject to a five-plus-year tariff phaseout is relatively high in most industries.
- Joining the CPTPP is another effective policy to attract quality FDIs.
- A strategy to attract quality FDI is needed to drive the success of the ‘Korean New Deal’ initiative.
- From an economic policy perspective, the ultimate goal of trade liberalization is to improve the productivity of the overall economy which can be achieved through trade agreements such as the CPTPP.
- The fallout from firms exits due to the high level of trade liberalization should be not countered with trade policy, but with welfare policy.
- The emphasis of trade adjustment assistance should be placed on supporting workers. Meanwhile, agricultural policy should focus on preserving the income of farmers and strengthening their competence through a public-purpose direct payment system.