Congratulations, South Korea! You might be the biggest winner from Donald Trump's five-nation Asia tour, whether it seems that way right now or not.
Clearly, President Moon Jae-in's 50 million people are very ambivalent about the U.S president's short visit. He stayed in Seoul for barely 24 hours, spoke condescendingly to the National Assembly, trolled North Korean leader Kim Jong Un on their soil, dissed their trade priorities, did his best to avoid their cuisine, and then moved on.
Trump did nothing to show that he would take more account of South Korea's preference for a less militaristic approach to the North -- and temper his aggressive rhetoric.
But the good news is that Trump may just help South Korea end years of economic complacency.
Since May 10, when Moon took office, Seoul has walked on eggshells in dealing the U.S. president. The Korean leader entered office with an ambitious plan to replace the country's export-led model with "income led" growth, putting greater emphasis on services, innovation and startups.
But Trump had recently decided to renegotiate -- or terminate -- the five-year-old Korea-U.S. free trade deal. So Moon delayed implementing his reforms until he sorted out whether Trump was bluffing about boosting American wages at the expense of Korean workers. Trump's Seoul visit last week made clear he is not.
Just as in Japan days earlier, Trump's ignorance of trade realities bubbled to the surface. He called the Korea-U.S. free trade agreement initiated by President George W. Bush and signed by President Barack Obama "horrible" and a "job killer" with little understanding of the mechanics behind it. The clear message to Moon: If you are waiting for the Trump White House to increase economic opportunities for Asia's No. 4 economy, do not. Under pressure, 42 Korean companies pledged to invest $17.3 billion in the U.S. by 2021. No reciprocal investments were announced, though.
The bright side is that the last week also reminded Moon he has other economic options, including China and Japan, as well as retooling the domestic economy.
China, for example, moved to repair the diplomatic tussle over Seoul hosting U.S. missile-defense systems. Moon met with Chinese President Xi Jinping in Vietnam last week, a bullish sign for investors worried about Beijing's moves to cancel mainland tour groups and shutter Lotte stores. At the same time, Japanese Prime Minister Shinzo Abe is accelerating efforts to ratify the Trans-Pacific Partnership, despite the U.S. pullout. He is leaving the open for Korea, which earlier had reservations about the bloc but is now increasingly positive about its potential economic benefits.
But the really good news of the last week could paradoxically have come from Trump -- the America First approach could now catalyze Moon's much-needed structural reform drive.
In the May 9 election, voters rallied around Moon's pledge to lower a 9%-plus youth unemployment rate, reduce record household debt, address widening inequality, incentivize innovation and replace the export-led model with "income-led" growth. Moon's pledge of at least 3% growth annually in gross domestic product means wrestling power away from the family-run conglomerates, or chaebol, around which the economy is built.
Names like Samsung, Hyundai, LG, Daewoo and SK powered Korea's rise from the ashes of war into the ranks of the top 12 economies. But they became too dominant and too politically connected. Over time, their command of virtually every business sector undermined small-to-midsize companies and hampered competitiveness. Moon entered the presidential Blue House with bold plans for antitrust crackdowns, taxes on super-rich tycoons and cashed-up corporate giants and reduced real-estate speculation. Moon calls it "trickle-up economics," the flipside of what Trump is endeavoring in the U.S.
Fourth time's the charm?
Trouble is, Moon is the fourth straight president promising, to varying degrees, to shake up the chaebol system. Moon's former boss Roh Moo-hyun tried between 2003 and 2008 and failed. So did Lee Myung-bak from 2008 to 2013. Next up was Park Geun-hye, who from 2013 to 2017 ended up getting co-opted by the chaebol. She is now in a prison cell, convicted of bribery and influence peddling in the same scandal that has Samsung head Lee Jae-yong locked up awaiting trial.
Trump's visit was the wakeup call Korea needed. Given America's higher wages, Seoul's preference is to bet on American consumers over China's. One president after another delayed reforms, hoping greater U.S. access would save the day. In Seoul, though, the "America First" president demanded "free, fair and reciprocal" trade from Moon, forgetting such a relationship already existed in the form of the FTA before he blew it up. Korea has no choice but to get busy raising its economic game.
Park's downfall reminds us just how difficult it is to discern where the public sector ends and private enterprises begin. She had a compelling narrative: the daughter of the Korean leader who brought the chaebol to dominance dismantling it. In the days of her father, dictator Park Chung-hee, the chaebol were national champions putting Korea on the map globally. Decades later, they morphed into Korea's biggest vulnerability. Their overborrowing and overcapacity left a top-heavy economy defenseless during the 1997 Asian crisis.
Even after the crisis, the oligarch-like chaebol proved highly adept at using pro-market government reforms to their benefit. Today, they still hog too much of the innovative oxygen better shared with newer and scrappier entrepreneurs. They bigfoot industries, bully subcontractors, hoard talent, pick off any startup that might imperil their market share and play by opaque governance rules that dent shareholder value.
Moon should offer tax incentives to smaller enterprises. His administration should police and punish monopolistic behavior and break up conglomerates where needed. Other steps include: greater corporate transparency; prodding friendly companies to unwind cross-shareholdings; fewer takeover defenses that limit foreign influence; regulatory checks and balances on conglomerates passing management to family members; more outside directors on corporate boards.
It is early days for Moon. But so far, he has displayed no more urgency than predecessors. Now that Trump is making it clear Korea cannot rely on U.S. demand, Moon must get real about with his domestic retooling campaign. Little does Trump know his real success in Asia might be making Korea great again.
William Pesek is a Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He has written for Bloomberg and Barron's.
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