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[Editorial] Widening trade deficit

Korea needs more aggressive economic policies to shore up weakening exports

May 24, 2023 - 05:30 By Korea Herald

Lawmakers from South Korea's rival parties are in a blame game over the continued decline in exports and snowballing trade deficit amid lingering uncertainty in the global economy that spells trouble for economic policymakers.

South Korea’s exports dropped 16.1 percent on-year in the first 20 days of May, extending their negative streak to seven straight months, according to data released by the Korea Customs Service on Monday. The trade deficit for the year so far reached $29.5 billion.

“Until recently, we talked about a trade deficit of $15 billion and $25 billion (for 2023), but the figure has sharply gone up” said Rep. Seo Young-kyo of the main opposition Democratic Party of Korea during a parliamentary session held Monday. “There are mounting concerns about the trade deficit at the end of the year.”

As Seo suggested, the outlook for trade figures is gloomy. The country’s trade balance has been in the red for 14 consecutive months from March last year to April. The cumulative trade deficit of $29.5 billion from January through the first 20 days of May accounts for some 62 percent of $47.8 billion in the total trade deficit of last year.

Unless the country pulls off a strong recovery in exports, the trade deficit for 2023 is forecast to surpass the record set last year.

In the May 1-20 period, the country's outbound shipments stood at $32.4 billion, down from $38.6 billion a year earlier, while imports dropped by 15.3 percent on-year to $36.7 billion during the period, leading to a trade deficit of $4.3 billion.

In particular, exports of chips -- a key export item for Korea -- went down by 35.5 percent year-on-year to $4.26 billion.

Rep. Yang Kyung-sook of the Democratic Party said the trade figures are worsening because of the Yoon Suk Yeol administration’s stance.

“(The administration) claims its economic policy is set in the right direction and all the problems come from abroad,” Yang said. “The government is telling one lie after another.”

In a bid to counter Yang’s view, Finance Minister Choo Kyung-ho told lawmakers that the country's trade balance could improve after May and he expects “a completely different performance in the fourth quarter.”

Park Dae-chul, chief policymaker of the ruling People Power Party, sided with Choo’s upbeat forecast. “Except for semiconductors and IT product,s which hold a big share in the Korean economy, the overall trade figures are positive,” Park argued.

During the May 1-20 period, however, not only chips but also other major export items witnessed a decline. For instance, exports of petroleum products fell by 33 percent to $3 billion and steel exports dropped by 7.5 percent to $2.9 billion. Among the 10 major export items, only automobiles bucked the trend, with outbound shipments jumping by 54.7 percent over the period to $3.44 billion.

Although Choo predicted a rebound in exports in the fourth quarter, concerns are rising about trade. Most worrisome is trade with China. A positive impact of China’s post "zero-COVID" reopening fell far short of expectations, with Korea’s exports to China falling by 23.4 percent on-year to $6.79 billion. As China invests heavily in building up its own chip industry, Korean chipmakers are likely to face shrinking demand from China -- a sign of a fundamental change in the bilateral trade structure.

A recent survey by the Federation of Korean Industries showed that seven out of the top 10 export items lost ground in terms of their competitiveness in overseas markets.

With major trading partners eagerly adding protectionist policies and the US-China trade conflict showing no sign of abating, Korean economic policymakers must take the weakening of key export items seriously and come up with more aggressive polices to reduce the trade deficit -- instead of bickering with opposition lawmakers over what went wrong and who is to blame.