Korean tech and retail giants are on high alert over the changing political climate in their biggest export markets, the US and China.
With the US moving to a protectionist stance in its international trade and China seemingly choosing to retaliate through trade against Seoul’s decision to deploy a US Terminal High Altitude Area Defense, Korea’s key exporters, including Samsung, LG and Lotte, are bearing the brunt of the political pressure.
The US, which is Samsung and LG’s largest handset and home appliances market, has slammed the two tech firms for unfair trade practices, claiming they moved their production bases in order to dodge taxes.
At a recent conference of business economists, Peter Navarro, who heads the White House’s new National Trade Council, said Samsung and LG moved their production bases from China to Vietnam and Thailand when anti-dumping tariffs were imposed on their refrigerators. He claimed such measures were “trade cheating.”
Peter Navarro who heads the White House’s new National Trade Council
Although Samsung and LG refrained from commenting, citing sensitivity of the issue, local industry watchers said the political pressure from the US is getting “out of control.”
“The remarks seem abnormal because it is too natural for a company to seek the best production base in order to save cost. Korean companies did not break international trade rules by, for instance, manipulating currency or pocketing subsidies from the government,” said Cho Dong-geun, a professor at Myongji University.
Alongside the US market, Korean companies are also keeping close tabs on their other biggest market, China, where several of their businesses have faced a backlash from hackers and customers in the past weeks as the standoff over THAAD intensified.
Chinese state media has bluntly called for a boycott of Korean products such as smartphones and cars. Last week, Chinese publication Huanqiu Shibao said, “Although all Chinese consumers are not obliged to retaliate for the deployment of THAAD, national security is related to all Chinese citizens,“ adding, ”Consumers planning to buy cars or smartphones can exclude Korean products.”
Retail giant Lotte is currently facing the biggest setback in China. After the closing of 39 Lotte Marts in China, citing violations of building safety codes, it seems that the next target may be a chocolate factory run by Lotte Shanghai Food Corporation.
The company is a joint venture launched in 2007 between Lotte Confectionery and US-based candy maker Hershey. According to Lotte Confectionery Wednesday, Chinese authorities came to the factory for a safety inspection on Monday.
Although Lotte has not received any official notice about the result of the inspection, a spokesperson for Lotte Confectionery said that sources on the ground said the factory is expected to be closed for one month.
”The official result is expected to come today or tomorrow,“ the spokesperson said. ”Lotte plans to improve the areas that were found lacking in the inspection and restart production as soon as possible.“
Hershey did not provide a comment in time for this article.
Other industries that heavily rely on the Chinese market are on high alert.
On Wednesday, the Agriculture Ministry said through a statement that Chinese authorities were likely to more strictly regulate customs and safety screenings against Korean products because of the tensions over THAAD, calling the situation ”worrying.“
”After monitoring major exporting companies, we found that some companies felt that requirements for documentation and labeling (on agricultural export products) had become stricter,“ the ministry said.
Heavy regulation spells trouble for Korea, as China accounts for 15.2 percent of Korea’s agricultural exports, as of the end of February.
The situation is not only limited to agricultural products. In a report released Wednesday, analyst Jang Woo-ae wrote for the IBK Institute that worsening relations with China could cause up to $15 billion in losses to the Korean economy. The losses would hit heaviest in the export, tourism and cultural contents industries.
”If Chinese economic retribution reduces exports, tourism and contents, it would lead to falling employment and investments and eventually to lower consumer spending,“ Jang wrote.
Anti-Korean sentiments continue to escalate outside of inter-government relations as well. On Wednesday, a popular website for connecting private tutors with students was hacked.
Users who attempted to access the page were directed to another image that contained inflammatory language about Lotte and THAAD. The defacing attack was claimed by a Chinese hacking group that calls itself the Panda Information Bureau.
The same group had defaced another page on March 1 with a similar message.
The defacing attacks come after Lotte‘s own websites, including its main website in China and its online duty-free shops, were brought down by hackers.
The distributed denial of service attack that hit the company’s online duty-free stores is estimated to have caused Lotte up to 500 million won ($437,000) in losses in three hours.
By Shin Ji-hye and Won Ho-jung
(shinjh@heraldcorp.com) (hjwon@heraldcorp.com)
신지혜기자@heraldcorp.com