Exports have in the past fueled growth in Korea. In a virtuous circle, robust exports have produced huge trade surpluses and encouraged businesses and enterprises to spend on new factories. Still better, they helped to fatten consumer pockets.
In other words, exports and export-led domestic demand have generated high rates of growth. But exports, which now have lost much of their momentum, are not regarded as a powerful an engine of growth as before.
True, Korean exports continue to produce trade surpluses. They exceeded imports for 65 of the 67 quarters until the second quarter of this year.
Moreover, trade surpluses have been enormous, as shown by the figure for the first half of this year. The amount, standing at $20.3 billion, was the largest ever. In June alone, the surplus amounted to as much as $5.3 billion.
But the problem is that surpluses are being produced, not because shipments are brisk, but because purchases from abroad are shrinking. This trend has continued since the second quarter of 2011.
According to the Bank of Korea’s quarterly trade reviews, imports declined 8.2 percent from the second quarter of 2011 to the first quarter of this year ― from $147.6 billion to $134.9 billion. On the other hand, exports rose at a snail’s pace, from $150.1 billion to $152.6 billion during the same period.
Domestic demand is falling as business enterprises are withholding investments in capital goods while consumers are tightening their purse strings. As a consequence, imports are declining.
The slow growth in exports accompanied by the decline in exports has spawned a debate on what is called a “slump-type” surplus. That is a surplus in the nation’s current account ― the sum of the balance of trade, net income from abroad and net current transfers ― that is created when imports are curtailed as a consequence of a slowdown in business.
Current account surpluses produced when imports dropped 8.2 percent from the second quarter of 2011 to the first quarter of 2014 were undeniably of a slump type. Yet, the central bank denies that the nation’s recent surpluses are of the slump type. Its claim may not be misplaced if it is focused on June, in which imports grew faster than exports.
No matter what type the recent surpluses may belong to, export earnings are hardly being channeled to fatten consumer pockets, as they have done in the past. Instead, they are piling up in the coffers of large businesses.
If the nation is to break out of the current slowdown, it is necessary to boost consumer spending. Welcome in this regard is the recent decision to raise the minimum hourly wage 7.1 percent to 5,580 won next year. But its impact will be negligible as far as consumer spending is concerned. What is needed is to help consumers fatten their paychecks.
In the past, conservative administrations have sided with corporations in pushing down demands for wage increases. They have often rationalized their anti-labor policies with their concern about wage-push inflation.
President Park Geun-hye’s administration may find it difficult to abandon its pro-business conservative policy and actively support wage increases. But it can remain neutral when labor and management negotiate their wage settlements. It can definitely afford to do so in the absence of any notable inflationary pressure.