Concerns are rising that Korea, which is heavily dependent on exports for growth, will become the biggest victim of a looming global trade war prompted by US protectionist measures and retaliatory moves from other major economies.
China and the EU are poised to react strongly if they are subject to hefty US tariffs on steel and aluminum imports, which are slated to come into force Friday.
The trade conflict between the US and China is set to further flare up as President Donald Trump’s administration is considering imposing punitive duties on up to $60 billion worth of Chinese technology and consumer goods to punish Beijing over its practices to acquire US intellectual property.
Steel is loaded onto a truck for shipping at the NLMK Indiana steel mill on March 15, 2018 in Portage, Indiana. (AFP)
Diminished trade among the US, China and the EU would have a greater impact on Korea than any other country, as it relies on the three major economies for nearly half of its outbound shipments.
The US, China and the EU accounted for 12 percent, 24.8 percent and 9.4 percent, respectively, of Korea’s exports last year, according to data from the Korea International Trade Association.
Bank of Korea Gov. Lee Ju-yeol said last week US trade protectionist measures would drag down the country’s overall exports by 0.3 percent this year.
The decrease could be steeper if the Trump administration went ahead with tariffs on steel imports from Korea and other trade pressures on the country, said Lee, who was recently nominated by President Moon Jae-in to serve another four-year term after his term expires at the end of March.
What is further concerning is that a reduction in China’s exports to the US would result in a steep decrease in the shipment of Korean intermediary goods to China.
As of 2015, intermediary goods, including parts, accounted for 76 percent of Korea’s exports to China.
Korea’s manufacturers running factories in China could also be affected by US sanctions on China.
The widening trade imbalance between the world’s two-largest economies is hardening the Trump administration’s stance on what it sees as China’s unfair practices in commerce, investment and intellectual property.
Despite Trump’s protectionist policy, the US saw its trade deficit with China grow from $347 billion in 2016 to $365.2 billion in 2017.
According to Chinese customs authorities, China’s exports to the US soared 44.5 percent from a year earlier last month, the steepest increase in three years.
“It seems inevitable that (Korea) will be exposed to collateral damage from the US-China conflict for the time being,” said Heo Yoon, a professor at Sogang University’s Graduate School of International Studies.
He added there might be no other way to go through this risk but to enhance Korean companies’ competitiveness to the degree of surmounting tariffs and other trade barriers.
A slowdown in exports would weigh on the Korean economy, which policymakers hope will grow above 3 percent this year following a 3.1 percent expansion last year.
The country’s outbound shipments have recorded an on-year increase for 16 consecutive months since November 2016, shoring up Asia’s fourth-largest economy troubled with weak domestic demand.
The increase, however, has decelerated in recent months.
The Hyundai Research Institute, a private think tank, forecast that Korea’s exports would increase 5.9 percent this year, down from 15.8 percent last year.
Accordingly, the country’s economy was projected to grow 2.8 percent.
Ju won, a senior researcher at the institute, noted the government, industrial groups and corporations need to urgently work out plans to cope with the possibility that the country’s exports may drop sharply amid the spread of trade protectionism.
Critics say the Moon administration lacks a sophisticated strategy to handle the intensifying US trade restrictions and their ramifications across the globe.
Moon and his aides initially vowed to deal with the tariffs in a confident and resolute manner based on the principle of separating trade issues from security cooperation.
Soon after, they departed from their stance and began resorting to emphasizing the close alliance between Seoul and Washington to be exempted from the tariffs, from which Trump has spared Canada, Mexico and Australia.
Korea, the third-largest steel exporter to the US after Canada and Brazil, would be hit hardest with the tariffs if it fails to be exempted, possibly along with China, while all other countries are included in the list of exemption.
Korean negotiators now find themselves being pushed to make bigger concessions in ongoing negotiations with the US on revising a bilateral free trade agreement in order to be exempted from the steel tariffs.
Korea has said it will consider filing a complaint with the World Trade Organization, if it is subject to the tariffs. However, it has stopped short of threatening to impose retaliatory duties like China, EU and other trading powers, partly in consideration of cooperation with Washington in the course of summit diplomacy to resolve the nuclear standoff with Pyongyang.
The Moon administration may have to be more strategic and flexible in dealing with US trade pressure, accepting Washington’s demands in a proactive manner in some selective areas such as sharing the cost of stationing American troops here.
Experts also note Korean manufacturing exporters need to step up efforts to sell more consumer goods in China, produce more value-added items and diversify overseas markets for their products.
By Kim Kyung-ho (firstname.lastname@example.org