US President Donald Trump's inconsistent and regressive tariff policy could hurt the United States the most and undermine its status as a global hegemon, a former senior International Monetary Fund official has said.
Anne Krueger, former IMF deputy managing director and former World Bank chief economist, made the remarks during a meeting with reporters in Seoul on Thursday, emphasizing the need for South Korea and other countries to maintain open economies to ensure future growth.
"In the short term, we will not see much investment, which is one reason why tariffs are more likely to pull down the rate of growth of production than to push it up. In that sense, tariffs are likely to be regressive," Krueger said.
She also pointed to policy inconsistencies, noting that Trump's push for greater direct investment from partner countries while seeking to reduce the trade deficit "does not make any sense" as more direct investment means more money flowing in, which actually increases the deficit.
"Korea is going to be hurt if all of this happens," she said. "Other countries will be harmed, but not as much as the US will harm itself."
"If the US continues on its current policies, I have no doubt that we will talk about the 'American Century,' roughly from 1925 to 2025. After that, it will be somebody else's -- whether Asia, Europe or elsewhere -- and whose it will be is up for grabs," she warned.
On July 30, Seoul and Washington reached a framework agreement under which the Trump administration agreed to lower "reciprocal" tariffs on Korea and sectoral tariffs on Korean autos to 15 percent from 25 percent. In return, South Korea committed to investing $350 billion in the US, along with other pledges.
Follow-up negotiations are currently under way between the two sides to hammer out the details of the agreement.
The economist voiced concerns about countries reducing market openness, saying that an open economy has historically delivered long-term prosperity.
"My guess is that, over 10 years, countries where policymakers both help buffer some of the impact of tariffs but, at the same time, let markets operate freely and remain open will perform better," Krueger said. "Gradually, more and more countries will join that trading community, and maybe even the US will recognize this mistake, I hope."
Speaking about artificial intelligence, Krueger expected it to have a largely positive impact on the economy.
"It's really a greater set of uncertainties than we've faced before. But we are going to see new jobs and some shifts in the kinds of jobs," Krueger said. "My guess is it will not be that abrupt or sudden, and it may actually offset some of the demographic pressures."
Krueger noted that South Korea is facing serious demographic challenges, but added that demographic changes do not always lead to severe consequences.
"I'm not as convinced as some people are that that's a bad thing. For years, many people thought the world's big problem was too much population growth. Somehow we managed to handle that, more or less," she said. "As I look around, it seems to me that there is much that could be done to improve quality of life through investments and other measures."
Krueger, who now serves as a senior research professor at Johns Hopkins University and a senior fellow at Stanford University's Center for International Development, is visiting Seoul to attend an international conference hosted by the Institute for Global Economics and Woori Financial Group on Friday. (Yonhap)
