Little change expected in Korea-U.S. economic ties

Seoul (The Korea Herald/ANN) - South Korea and the United States were expected to undergo no drastic change in their economic relations after Barack Obama was reelected U.S. president, analysts in Seoul said Wednesday.

Korea's major economic think tanks forecast that U.S. President Obama's reelection would help decrease uncertainties regarding his country's economic policies. But they raised doubt over the outlook for the U.S. economy next year, which is a key factor for Korea's continued economic growth. The U.S. is Korea's second-biggest export market.

"Policymakers and businesses seem to be relieved by Obama's victory, considering consistency in U.S. economic policies. But it is not certain whether Obama's new economic team can fix the imminent fiscal fiasco or not," said Ahn Soon-kwon, an analyst from the Korea Economic Research Institute.

Without an agreement in U.S. Congress by the end of this year, the U.S. will face sharp fiscal tightening - a "fiscal cliff" that includes $7 trillion worth of tax increases and spending cuts from January next year.

If the "fiscal cliff" is put in motion, the U.S. economy, which has been on a slow track to recovery, could stall, dragging the world economy down with it. Under this worst-case scenario, the strengthened Korean won would weaken demand for Korean goods in leading export markets, dealing a blow to the nation's growth.

"Republicans are expected to secure more seats in the upcoming election for the House of Representatives, so Obama's proposal to fix the fiscal issue will face opposition," Ahn said.

President Obama is expected to be grilled over domestic fiscal issues from the beginning of his second term, meaning trade-related issues will likely not top the new administration's agenda, a report from the Institute for the International Trade, a Korean economic think tank, said.

When it comes to trade-related policies, the Obama administration will use free trade agreements as a key tool for growth, while continuing to protect U.S. manufacturers. The IIT said the U.S. government could impose tariffs on Korean exports if it believes Korean products are disrupting market order or stifling U.S. manufacturers. In a recent case, the U.S. Commerce Department slapped charges between 18 and nearly 250 percent on Chinese solar panel producers in October.

"When it comes to the impact of the U.S. election result on the nation's key industries, renewable energy-related companies and green car makers will become key beneficiaries as Obama will continue to cultivate green businesses to create more jobs and for economic growth," said Kim Ki-bae of Samsung Securities.

Since his first term, President Obama has promised to halve oil imports by 2020 and cultivate renewable energy sources such as wind and solar power to make up energy losses from declining oil imports. The size of the renewable energy sector has doubled over the past four years thanks to broad support from the Obama administration.

A handful of Korean conglomerates like Hanwha Group shifted gear, in particular, to solar or wind power in line with the U.S. energy policy. However, they are suffering due to sluggish demand for solar power amid the global economic downturn and an influx of cheap Chinese products.

"The health-care industry also welcomes Obama's victory as the Obama administration promised to keep investments in the sector along with a reform for medical services to people in need," Kim added.

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