U.S.-China Currency Feud is Korea’s Business Too

The struggle between the U.S. and China is violently escalating. The world should care because conflict between the G2 countries, which determine global politics and the economy, will bring about a huge change to world order.

The battle between the two giants is waged on all fronts. From the United States’ arms sales to Taiwan to Obama’s meeting with Tibet’s spiritual authority, the Dalai Lama, military and diplomatic conflict between China and the U.S. is rising, as the two countries exchange heated arguments. Conflicts have even arisen over a 231 percent retaliative tariff on electric blankets and chicken.

In particular, the question of yuan appreciation has surfaced as a worldwide concern because it will have a big impact on the global economy. Despite America’s repeated requests, China is not appreciating the yuan and is counterattacking by selling U.S. government bonds, in effect sending the message that it will not change its export-led growth policy.

On the other hand, the U.S. is scathingly criticizing China for artificially maintaining the yuan’s low value, which is not only increasing a massive trade surplus but also creating a bubble in the national economy. From the perspective of the U.S., it cannot just surrender the market, given its own expanding financial crisis, current federal deficit and rising unemployment rate. Furthermore, the U.S. government has promised to create 2 million jobs by doubling its exports in the next five years. From the perspective of other countries, they cannot help but worry: The change in America’s position signals that the U.S. can no longer play its role as provider of USD liquidity in the world market while enduring large-scale trade deficits.

Naturally, Korea also cannot remain indifferent to U.S.-China friction. As the top two export markets for Korea, the U.S. and China greatly influence our economy. In particular, depending on how the issue of the yuan exchange rate is resolved, the flow of international floating funds could change, and the pressure to appreciate the won will likely also rise. Therefore, Korea will have to prepare countermeasures to the different scenarios that may play out from the U.S.-China conflict, as well as make great efforts to ratify the Korea-U.S. Free Trade Agreement (KORUS FTA), which will act as a catalyst to enter the U.S. market.