"Do Not Interpret Trump's Remarks Literally… Find Practical Gains by Offering 'Small Carrots'"

"US 'No Landing' Could Lead to Rate Hikes"

Interview with 'Dr. Doom' Nouriel Roubini

"Absolutely No Retaliatory Measures"

Increase Purchases of US LNG to Gain Favor

Make Trump Feel Victorious in Negotiations

Retaliation Only 'Maximizes' Diplomatic Tensions

Need to Appeal as a 'Key Ally' to Counter China

Nouriel Roubini, Honorary Professor at New York University Stern School of Business, discusses South Korea's policy response ahead of Trump's second term

Nouriel Roubini, known as 'Dr. Doom', an Honorary Professor at New York University Stern School of Business (pictured), predicted that the US Federal Reserve (Fed) might halt interest rate cuts this year.

In a video interview with Hankyung on the 8th, Professor Roubini assessed the US economy, stating, "Growth rates remain high, and inflation is entrenched," diagnosing that "the most likely scenario after a soft landing is a no landing." He forecasted that instead of the economy gradually slowing down and inflation heading towards the Fed's target of 2%, the economy might not slow down, leading to sustained high inflation. He mentioned, "The Fed might not cut rates, and in the worst case, might even raise them."

The Fed pivoted in September last year, lowering the benchmark interest rate from 5.25~5.5% to 4.25~4.5% by December of the same year. This year, it has signaled two additional rate cuts (0.5 percentage points) through the dot plot. Professor Roubini projected that the yield on the US 10-year Treasury, which serves as a benchmark for global bond rates, could rise above 5% due to inflation and the US government's fiscal deficit. He warned, "If Treasury yields rise further, it could trigger a significant correction in the US stock market."

Regarding South Korea's response to the inauguration of US President-elect Donald Trump, Professor Roubini advised, "Trump will declare victory with just a few carrots and bones," suggesting not to retaliate against his tariff policies.

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"Do not retaliate against the Trump administration's tariff policies" and "Emphasize South Korea's geopolitical necessity to bring the US to the negotiating table."

These were the two main points emphasized by Nouriel Roubini, Honorary Professor at New York University Stern School of Business, regarding South Korea's policy response to US President-elect Donald Trump on the 8th. Professor Roubini believed that retaliatory measures against the Trump administration would only maximize diplomatic tensions and not yield practical gains. Instead, he advised emphasizing that strengthening alliances with South Korea could limit China's influence in Asia.

▷ Trump's policies are unpredictable.

"We need to listen carefully to the concerns of President-elect Trump. He points out that allies like Japan, South Korea, and Taiwan do not spend enough on defense and argues that they should pay more for the defense services provided by the US."

▷ How should South Korea respond?

"The US has a large supply of liquefied natural gas (LNG), so South Korea can purchase more US LNG, which is cheaper than unstable suppliers like Russia. If South Korea cooperates with this strategy, the US will respond positively."

▷ There are calls for retaliatory tariffs.

"When the US threatens with tariffs, we should not respond by saying 'we will impose tariffs too.' Instead, we should emphasize that 'we are friends and allies, sharing economic, political, and geopolitical goals,' and open the door for dialogue."

▷ How should negotiations be conducted?

"President-elect Trump tends to declare 'great deals, the best deals' when the other party makes even a small concession in negotiations. He considers this a victory and moves on to the next stage. South Korea can offer a few carrots and incentives, allowing President Trump to declare that he has secured concessions. As a result, the concessions South Korea needs to make may be relatively small."

▷ What cards does South Korea have?

"South Korea is also an important country for the US. For the US, maintaining friendly relations with South Korea will be a key way to prevent Asia from being dominated by China. This mutual importance is unlikely to change over time. President Trump's remarks may sometimes sound exaggerated or extreme. It is necessary to take them seriously but not literally."

▷ What impact will Trump's tariff policies have?

"Tariffs cause inflation and hinder economic growth. They create inefficiencies by moving production resources (like labor) from low-cost regions to high-cost regions."

▷ Some say tariffs are used as a negotiation tool.

"If that's the case, the negative impact on the US economy will be reduced (as the scope and rates of tariffs decrease). However, some of Trump's aides take a hardline stance on trade. Ultimately, the president's instincts will play a decisive role."

▷ There is talk of a currency war.

"When the Trump administration imposed tariffs of up to 20% on some Chinese products during its first term, China devalued its currency to a level close to the tariff rate. This was a major reason why the tariffs imposed in 2018-2019 did not significantly impact inflation in the US."

▷ A strong dollar is expected.

"If the dollar strengthens, the likelihood of inflation in the US due to tariffs decreases. If a strong dollar is not allowed, inflation occurs. The bottom line is that there is no free lunch. The Trump administration must decide what to sacrifice."

▷ Why is the US economy strong?

"The AI revolution has sparked a boom in capital spending. As supply shocks caused by events like the COVID-19 pandemic are resolved, economic growth has recovered. US fiscal policies, particularly the CHIPS Act and the Inflation Reduction Act (IRA), have contributed to economic revitalization."

▷ So, it endures high interest rates.

"Yes. There are three scenarios for the US economy: a soft landing where growth rates gradually slow, a no landing where the existing growth trend continues without economic slowdown, and a hard landing where the economy enters a recession. I think a soft landing is likely. If not a soft landing, a no landing is more likely than a hard landing."

▷ You seem optimistic, unlike 'Dr. Doom'.

"I always say I'm not Dr. Doom, but Dr. Realist. The outcome will depend on what policies Trump implements."

▷ What will happen to US monetary policy?

"US economic growth rates remain high, and inflation is entrenched. There are also issues like tariffs and fiscal deficits. The US Federal Reserve (Fed) might cut rates only once or not at all. In the worst case, there is a possibility of a rate hike."

▷ How will South Korea's political crisis affect the economy?

"Typically, political uncertainty leads to policy uncertainty, which can weaken business and consumer sentiment. It can also make foreign investors hesitant to invest. However, I think this political crisis has shown that South Korea is a strong democratic country. South Korea has excellent execution, good governance, a robust civil society, the rule of law, and an independent press."

▷ South Korea faces severe low birth rates and aging.

"Of course, South Korea is grappling with issues similar to other countries, such as slowing growth. However, the global economy is still interconnected, and as a small open economy, South Korea will benefit from global trade, especially in services and digital services. South Korea is in a favorable position with a strong manufacturing base, a leading semiconductor industry, a solid automotive industry, and excellent human capital."

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Nouriel Roubini, Honorary Professor at New York University Stern School of Business, graduated from Bocconi University in Italy and earned his Ph.D. in economics from Harvard University. Before joining the Stern School of Business, he was a professor of economics at Yale University. From 1998 to 2000, he served as a senior economist for international economics at the Council of Economic Advisers (CEA) and later as a senior advisor to the Under Secretary for International Affairs at the US Department of the Treasury. In a 2006 speech at the International Monetary Fund (IMF), he warned of an impending recession due to credit and housing market bubbles. His prediction gained attention when the bubble burst during the 2008 global financial crisis, earning him the nickname 'Dr. Doom'.

New York = Correspondent Park Shin-young nyusos@hankyung.com