Published : 2013-12-13 20:00
Updated : 2013-12-13 20:00
Korea’s external trade surpassed the $1 trillion mark on Dec. 6 when cumulative exports were recorded at $519.4 billion and imports at $480.6 billion. To the joy of the general public as well as the business community and the government, 2013 will be the third consecutive year with more than $1 trillion in external trade.
All the more delightful is the forecast that Korea will surpass Japan for the first time when their current account surpluses are tallied for this year. Korea is projected to generate a $63 billion current account surplus, $3 billion more than the estimate for Japan.
But Korean economic players should not allow themselves to be carried away with overconfidence in the future performance of the export industry. The 2014 outlook is already clouded by the Korean won’s rapid rise and the Japanese yen’s fast fall, both against the U.S. dollar.
Already the yen has fallen almost 20 percent against the won since Prime Minister Shinzo Abe launched his “Abenomics” policies to boost the Japanese economy a year ago. In other words, Japanese products have gained in price competitiveness against their Korean counterparts.
It is not just the Korean current account surplus that will have reached a record high. Korea’s foreign exchange reserves will be the largest ever, already standing at $345 billion at the end of November. Both are adding to the pressure to strengthen the won further against the dollar and the yen. Moreover, the U.S. is warning against market intervention by Korea, claiming the won is undervalued by 2 to 8 percent.
The anticipated change in the exchange rates will have a serious impact on Korean exports. According to one estimate, the won’s 10 percent gain against the yen, for instance, will translate to a 12 percent fall in Korean auto exports. It is not the Korean auto industry alone that will suffer severely from a strong won. The Korean consumer electronics, steel and shipbuilding industries will also have a disadvantage in their competition against their Japanese counterparts.
But the Korean government has little room for maneuvering. All it can do is attempt to talk down its currency, eventually to no avail. Instead, business enterprises will be called on to spend their export earnings on facilities and, by doing so, raise their productivity. Only then will the pressure on the won ease off.