fter Donald Trump’s surprising
upset win at the U.S. presidential
election, many countries—
if not the entire
world—are wondering what this victory
means for their own economy. Given that
Mr. Trump has quite the reputation for
being eccentric and somewhat bizarre,
many worry that he might carry out the
same eccentric and bizarre ideals in his
policies. But would he? The answer is no.
Running a country is not the same as running
a company. In a private company,
the CEO may be able to call all the shots,
but the president of the United States cannot.
First, the president must deal with the
Constitution. Second, he must persuade
Congress. Third, he still has to appease
more than half of U.S. citizens who have
not voted for him. Tens of thousands of
people have already rallied against him
all over the nation. Can he turn a blind
eye to them? Absolutely not. So among
all this uncertainty felt by the public, here
are some things we can be sure about.
First, under the Trump administration, the Federal Open Market Committee (FOMC) rate hike seems almost certain. FOMC members have been deadlocked for some time between the dovish and the hawkish, rendering quick action almost impossible. But this will change as Mr. Trump is expected to fill two vacant seats in the FOMC with the hawkish, making them the majority. On top of that, the current FOMC Chairwoman Janet Yellen will be replaced by someone who will try to pursue a rate hike. A higher rate will benefit the people of the middle class as they would be able to save substantially, which in turns leads to more consumption and consequently a more prosperous
banking industry. It will also make the
U.S. dollar stronger, giving U.S. citizens
greater purchasing power abroad, which
is good news to Korea.
Under the Trump administration, there would also likely be huge federally financed investments in infrastructure across the nation. Bridges, airports, roads and highways are expected to be renovated, upgraded or newly built under the new administration. These public works will definitely raise the nation’s growth rate. The federal budget deficit and government bond issues may surge, but not many will care as long as such decisions boost US growth.
The Korean people have also been closely following the election results, as they are curious as to see what this means for the Korean economy. In my opinion, for Trump, pressuring either China or Korea on trade and exchange rate issues may be important but not as imminent as the rate hike and infrastructure investment projects in the U.S. This is because trade talks with other countries require lengthy and tedious negotiations before both sides can come to an agreement.
Also, a booming U.S. economy accompanied by a higher rate hike is one of the best scenarios for Korea under the Trump administration. First, Korea could expect better export performance. As a major part of Korea’s export performance is affected by the growth of the U.S., a stimulation of economic growth through
infrastructure investment would activate Korean and Chinese exports to the U.S.
Furthermore, a higher rate in the U.S. will induce the depreciation of the won exchange rate, which is also conducive to higher export performance. Of course, some challenges might arise, especially as the Japanese yen depreciated faster than any other currency after the U.S. election. This may mean that Korea’s price competitiveness against Japan’s may slightly weaken. But despite some bumps in the changing of administrations in the U.S., the Korean economy won’t be heavily affected as long as exports continue to surge.