Economic risks
Imminent challenges come from US, Japan
Korea Inc. is facing greater external risks while it is vividly losing vitality.
Japan has removed Korea from its whitelist of preferential export procedures for industrial materials apparently as a result of its grudge against Seoul over historical issues. This measure is scheduled to take effect in 10 days. Seoul also decided to remove Japan from its own list of trade partners given preferential treatment.
On top of this, the prolonged trade war between the U.S. and China is raising uncertainties over the trade environment surrounding Korea. U.S. President Donald Trump urged the World Trade Organization (WTO) recently to prevent rich member countries from unfairly benefiting from their “developing” country status, apparently targeting China. Trump, however, also singled out South Korea, Mexico and Turkey as nations enjoying what he called “unfair advantages” of trade rules.
Trump is apparently getting tough on trade partners he sees as enjoying a one-way trade relationship with Washington. He has often cited South Korea when talking about unfair trade practices the U.S. faces.
What is notable is that Korea Inc.’s imminent challenges are coming from the U.S. and Japan. President Moon Jae-in said last week Korea’s economic fundamentals are strong, citing a recent Fitch Ratings analysis which maintained its “AA-” for South Korea with a stable rating outlook, which is two grades higher than Japan’s “A.”
Moon said so to caution against fanning fears of a crisis amid escalating tensions with Japan, but there are reasons we should not be overly confident about our economy.
Regarding the Japanese measure, the government is taking it as an opportunity to reduce Korea’s dependence on Japan. Enterprises have started to find alternative suppliers of affected goods from other countries and are localizing key products and technologies. But these are difficult tasks when the country remains gripped by sluggish exports and investments.
In its latest report on the outlook for the Korean economy, the finance ministry said the economy is faced with growing downside risks from a slowing global economy, lower demand for chips and escalating trade tensions.
The country’s exports dropped 11 percent in July from a year earlier due to a prolonged slump in chips and weak demand from China, extending their year-onyear decline to the eighth consecutive month.
The sluggish sales of semiconductors are becoming a major risk for the Korean economy.
That is because Samsung Electronics, the world’s largest memory chip maker, is responsible for about 20 percent of the country’s total exports, and it is the biggest victim of the Japanese export restrictions.
What could be worse for Korea Inc. are potential risks resulting from the U.S. president.
President Trump said the U.S. would unilaterally stop treating Korea and other trade partners as “developing countries” unless the WTO made “substantial progress” within 90 days in addressing their status.
President Moon was probably right to say that Korea still has strong economic fundamentals. However, it is true that the country is facing unprecedented risks and the economic growth momentum has weakened. It is time to work with a deep sense of crisis.