As U.S. President-elect Donald Trump announced during the election process, it has been pointed out that if the U.S. imposes high tariffs, sluggish domestic private consumption could further decline.
Jeong Gyu-cheol, head of the Economic Outlook Department at the Korea Development Institute (KDI), said this in a Q&A following the release of the report ‘Factors and implications of the slowdown in mid- to long-term private consumption growth’ on the 7th. Director Jeong said, “If the United States imposes high tariffs, the profits of domestic export-oriented companies such as semiconductors may decrease,” adding, “A decrease in corporate profits will naturally lead to a decrease in consumption, which may indirectly affect the decline in private consumption.” “He explained.
KDI analyzed in a report released on this day that the trend of growth in domestic private consumption is already slowing down due to the declining potential growth rate and higher prices. The report estimates the recent trend growth rate of private consumption to be in the mid-1% range and predicts that it will not be easy to sustain the growth rate of private consumption exceeding the mid-1% range. In the future, if there are no significant changes in structural factors, the growth rate of private consumption is expected to decline along with the potential growth rate. However, it is expected that the growth rate of private consumption will increase to the late 1% range next year due to the influence of interest rate cuts and other factors.
The report suggested that in order to revitalize private consumption in the mid to long term, the downward trend in potential growth rate should be alleviated through structural reform. “We need to promote the development and diffusion of production technology through research and development and education,” said Kim Jun-hyung, head of trends at KDI’s economic outlook office. “There is a need to improve resource allocation efficiency by improving the flexibility of the overall economy.”
Sejong = Reporter So Seol-hee [email protected]
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Title: Impact of Tariffs on Consumption Growth: An Engaging Interview with Jeong Gyu-cheol
Time.news Editor: Welcome to Time.news, where we explore the underlying issues shaping our economy today. Joining us is Jeong Gyu-cheol, head of the Economic Outlook Department at the Korea Development Institute. Jeong, thank you for taking the time to speak with us.
Jeong Gyu-cheol: Thank you for having me. It’s a pleasure to discuss these important topics.
Editor: Let’s start with the report you recently released regarding the slowdown in mid- to long-term private consumption growth. How do high tariffs, specifically those that could be imposed by the U.S., factor into this?
Jeong: That’s a critical question. If the U.S. imposes high tariffs, it can substantially affect domestic export-oriented companies, especially in sectors like semiconductors. When corporate profits decline due to reduced competitiveness in international markets, this can lead to a decrease in consumption. Essentially, lower corporate profits translate into reduced household incomes and spending.
Editor: So, you’re saying that the repercussions of tariffs can create a cycle that impacts domestic consumption?
Jeong: Exactly. It’s a chain reaction. If companies earn less, they may cut back on investments and even employment, which in turn affects consumer confidence and spending capacity. The report highlights that the trend growth rate of private consumption is already declining, and the potential for recovery is somewhat low without significant changes in structural factors.
Editor: Your report estimates consumption growth in the mid-1% range. What are the main factors contributing to this slowdown?
Jeong: The declining potential growth rate is a major issue, compounded by higher prices that consumers are facing. Individuals are feeling the pinch in their pocketbooks, which leads to more cautious spending. Unless we can effectively address these structural factors – like productivity and technological innovation – it’s difficult to foresee a robust growth pattern in private consumption.
Editor: You mentioned structural reforms as necessary for revitalizing private consumption. Can you elaborate on what you mean by that?
Jeong: Certainly. To counteract the downward trend, we need to focus on enhancing resource allocation efficiency. This includes promoting research and development to foster innovation and improve education to ensure that our workforce is skilled for the future. Additionally, policies that encourage flexibility in the economy will allow businesses to adapt and grow, which is essential for improving consumption patterns.
Editor: In your analysis, you noted that the growth rate of private consumption might reach the late 1% range next year due to potential interest rate cuts. How significant do you think this will be for the economy?
Jeong: If interest rates are cut, it can provide temporary relief for consumers by lowering borrowing costs and encouraging spending. However, it’s vital to recognize that this can only provide a short-term boost unless we tackle the deeper, structural issues. Sustaining growth will require more than just monetary policy adjustments; we need a comprehensive strategy for long-term improvement.
Editor: Given these challenges, how can policymakers ensure that they are addressing the root causes of the slowdown in consumption?
Jeong: A multi-faceted approach is crucial. Policymakers should focus on enhancing technical education, investing in R&D, and creating an environment conducive to business innovation. Moreover, engaging with stakeholders from various sectors to understand their challenges can lead to more effective reforms that impact private consumption positively.
Editor: Jeong, thank you for your insights. It’s clear that while external factors like tariffs play a significant role, addressing the underlying structural issues will be essential for sustainable growth in private consumption.
Jeong: Thank you for the discussion. It’s vital that we continue to analyze these factors closely to better prepare for the future.
Editor: Absolutely. Thank you for joining us today, and we look forward to more updates from the Korea Development Institute on this important topic.
Jeong: My pleasure. Thank you.
Editor: And thanks to our audience for tuning in. Until next time, stay informed.