|U.S. President-elect Joe Biden speaks during a cabinet announcement event in Wilmington, Delaware, Nov. 24. AFP-Yonhap|
Biden set to adopt more stimulus, tougher regulations
By Lee Kyung-min
They believe that the presidency of Biden, who has vowed to pursue stricter rules to control big tech firms and to fight climate change, can bring both opportunities and challenges for the Korean economy, suggesting that the government and Korean firms keep a close watch on the development of U.S. policies.
Korea is expected to have greater room to maneuver over fiscal policy as economic advisers to Biden seek to push for quick stimulus packages amid growing concerns that the world's largest economy is headed for a double-dip recession as early as next year.
$2 trillion expected stimulus will spur the economy of not only the U.S. but economies around the world, especially export-reliant Korea where consumer spending is feared to chill rapidly due to the recent flare-up in the number of COVID-19 cases.
Overall subdued uncertainties surrounding the global economic and financial conditions will lead to material improvements in trade conditions, reinvigorating Korea's key export industries thereby anchoring consumer confidence.
The importance of a proper, timely management of liquidity in the market is growing all the more given the "overflow" of money in the financial market brought on by the record-low borrowing rate amid expansionary monetary policies in the financial market.
Biden and Yellen
According to media reports in the U.S., President-elect Biden and the Democratic leadership have pushed for a stimulus package of at least $2 trillion, while some parliamentary impasse is expected to delay a prompt agreement over the aid before the Jan. 20 inauguration of Biden. The Republican leadership reportedly proposed a $500 billion package.
Biden proposed rolling back some of the corporate tax cuts, restoring the tax rate to 28 percent from the current 21 percent. Under the "Build Back Better" economic recovery plan, he proposed a $400 billion investment in manufacturing, as part of rebuilding supply chains with an additional $300 billion for research and development (R&D) efforts involving electric vehicle (EV), 5G and artificial intelligence (AI) technologies.
The much-expected partisan wrangling over the amount aside, the lawmakers there are basically admitting that the possibility of a double-dip recession is looming larger, as economic conditions continue to deteriorate from the renewed surge in virus infections of millions of Americans and impending loss of unemployment benefits, compounded by soaring evictions and foreclosures.
Biden's advisers in particular are seeking a variety of options to tackle the prospect of rising unemployment and economic downturn which are highly likely to be much more severe than expected.
Taking a central role to rebuild the U.S. economy, Janet Yellen, a former chair of the U.S. Federal Reserve (2014-2018), will lead the Treasury Department.
Her mentioning of the need to "continue extraordinary fiscal support," during an interview with Bloomberg is in line with her clear position of calling for "continued government support for workers and businesses," a stance that also helps the argument that recovery will be slowed if state and local governments do not have proper aid.
The Korean government considers the incoming Biden administration more of an opportunity than an uncertainty.
Deputy Prime Minister and Finance Minister Hong Nam-ki said Nov. 12 that for Korea upside risks brought on by Biden's victory outweigh downside ones.
"The implications of diminishing global economic uncertainties and the U.S.' expansionary fiscal policy will help us, although concerns remain over the U.S.-China trade feud dragging out and strengthened rules to achieve carbon neutrality," he said during a ministerial-level meeting at Seoul Government Complex in Gwanghwamun.
Seoul National University economist Kim So-young said the government should have a clear set of priorities to find the best way to bolster policy efficiency and effectiveness amid the change in external conditions.
"Efforts from government authorities and central banks toward buttressing global economic recovery is and should be a valid opportunity for the government to identify and spur the growth momentum, which will not be achieved unless they continue to reduce redundant spending."
It will take time for the new set of policy drives of the Biden administration to have material impact on the Korean economy, according to Korea Economic Research Institute (KERI) economic policy team head Hong Sung-il.
"Investments in infrastructure, green and high-tech projects may not be enough for local firms to see a dramatic, immediate profit," he said.