South Korea pushes US investment bill as Trump threatens 25% tariff hike | East Asia Tonight 27 Jan

East Asia Tonight - February 6, 2024 - Summary

Key Concepts: US-South Korea Trade Tensions, Japan Snap Election, China-UK Relations, EU-India Trade Deal, China’s Economic Influence, Micron’s Expansion in Singapore & AI Demand, Geopolitical Fragmentation, Arctic Security, BTS Concert Ticket Crisis.

I. US-South Korea Trade Dispute & Tariff Threats

The United States and South Korea are facing renewed trade tensions after President Trump threatened a 25% tariff hike on South Korean goods, citing delays in implementing a trade deal agreed upon in July. This deal stipulated a $350 billion US investment by South Korea into the US in exchange for capped tariffs at 15%. The threatened tariffs target key exports like automobiles (accounting for 30% of US shipments, worth $30 billion in 2023) and pharmaceuticals ($9.6 billion in 2024).

• Specifics: Hyundai and Kia saw a $1.44 billion drop in quarterly operating profit when a 25% tariff was initially imposed in April 2023. A return to 25% tariffs is predicted to slash 2026 operating profits by up to 23% and reduce competitiveness.
• Response: South Korea’s trade envoy is heading to Washington for talks. The National Assembly is attempting to expedite review of the trade deal. Demonstrations have occurred outside the US embassy in Seoul protesting the tariff threat. Despite the threat, the South Korean stock market (KOSPI) rebounded, closing up nearly 3%.
• Quote: “We hope to find a rational solution,” – South Korean official regarding the tariff dispute.

II. Japan’s Snap Election & Political Landscape

Japan is holding a snap election on February 8th, with all 465 lower house seats up for grabs. This election is a critical test for Prime Minister Sana Takayichi’s new coalition with the Japan Innovation Party, formed after a scandal involving the LDP’s longtime ally, Komeito.

• Context: The election was called to seek a fresh mandate after the coalition’s formation. Takayichi risks stepping down if the ruling block fails to win a majority.
• Key Issues: Food and energy security are central to the LDP’s platform. Takayichi’s comments regarding a potential Taiwan contingency have strained relations with China.
• Political Alignments: The Constitutional Democratic Party (CDP) has formed an alliance with Komeito, presenting a challenge to the LDP-Japan Innovation Party coalition.

III. China’s Expanding Global Influence & Partnerships

China is actively strengthening ties with various nations, demonstrating its growing global influence.

• China-UK Relations: Beijing has expressed readiness to deepen trust with the UK ahead of Prime Minister Kia Starmer’s visit. Discussions will focus on improving access for British financial services, luxury goods, and potentially resuming the UK China CEO Council.
• China-Finland Relations: President Xi Jinping met with Finnish Prime Minister Peter Oppo, emphasizing cooperation in energy, agriculture, and technology. China welcomes Finnish companies to invest in its market.
• Arctic Strategy: China’s footprint in the Arctic is growing, aiming to become a “polar great power” by 2030, raising concerns about security in the region.
• Quote: “We have to be more sophisticated…and one security minister Dan Jarvis said can be managed.” – Stuart Smith (CNA, London) on the UK’s approach to China.

IV. EU-India Trade Deal – A “Mother of All Deals”

After nearly 20 years of negotiations, the European Union and India have reached a landmark trade deal, creating a free trade zone spanning 2 billion people.

• Key Provisions: The EU will eliminate tariffs on nearly 97% of Indian goods, while India will reduce tariffs on approximately 90% of EU exports. This is expected to double bilateral trade within five years.
• Impact: The deal is expected to boost labor-intensive sectors in India (leather, textiles, gems) and provide greater access for European products like automobiles, wine, and pharmaceuticals.
• Quote: “The mother of all deals” – EU Chief Ursula von der Leyen describing the trade agreement.

V. Business & Economic Updates from Hong Kong’s Asian Financial Forum

The Asian Financial Forum in Hong Kong highlighted the importance of Hong Kong as a cross-border capital hub amidst geopolitical fragmentation.

• China-Linked Fundraising: Citic Group is actively pursuing IPOs and offshore bond offerings. The People’s Bank of China is supporting deeper offshore RMB liquidity.
• RMB Internationalization: Hong Kong aims to be a global hub for RMB internationalization, with a doubled swap facility with the PBOC.
• Geopolitical Impact: Businesses are diversifying production networks, prioritizing security and resilience alongside efficiency.
• Quote: “Geopolitics and supply chain reconfiguration…the key question is far more than where is the cheapest but where is secure, scalable, sustainable and cost competitive.” – Speaker at the Asian Financial Forum.

VI. Micron’s Investment in Singapore & the AI Boom

Micron Technology is investing $24 billion over 10 years in a new wafer fabrication facility in Singapore, creating approximately 1,600 jobs. This investment is driven by the surging demand for memory and storage, particularly for AI applications.

• AI’s Impact: Micron CEO Sanjay Mehrotra emphasized that memory and storage are now “strategic assets” enabling AI performance. High Bandwidth Memory (HBM) is projected to become a $100 billion industry by 2028, accelerated by AI demand.
• Supply & Demand: Micron anticipates continued tightness in memory supply into 2027, with current capacity only able to meet 50-66% of customer demand.
• Quote: “You have to believe in AI. AI is here for long term. This is the next decade or two.” – Sanjay Mehrotra, Micron CEO.

VII. North Korea’s Missile Launches & Regional Security

North Korea fired two short-range ballistic missiles, landing just outside Japan’s exclusive economic zone. This occurred during a visit by a senior US defense official to South Korea. Analysts believe these tests are aimed at enhancing military capabilities and potentially for export to Russia.

VIII. BTS Concert Ticket Crisis in Mexico

The overwhelming demand for BTS concert tickets in Mexico City led to a national crisis, with nearly 1 million people attempting to purchase tickets for only 150,000 available seats. The Mexican President has appealed to South Korea for additional shows.

Conclusion:

East Asia Tonight’s coverage reveals a region grappling with complex geopolitical challenges and economic shifts. From trade disputes and election uncertainties to expanding partnerships and technological advancements, the region is undergoing significant transformation. The growing importance of AI, the need for supply chain resilience, and the pursuit of strategic partnerships are key themes shaping the future of East Asia.