South Korea’s exports are set to record an on-year decrease for the 10th consecutive month. Customs data released this week showed that outbound shipments fell 21.8 percent from a year earlier to $28.5 billion in the first 20 days of September.
The decrease is attributed partly to the reduced number of working days, since the Chuseok holiday fell in the second week of the month. On the basis of the working-day average, Asia’s fourth-largest economy still saw its exports drop 10.3 percent on-year to $2.1 billion during the cited period.
Korea’s exports remain more vulnerable than those of foreign competitors amid worsening global trade conditions.
The country’s outbound shipments dipped 8.6 percent on-year in the second quarter, the second-steepest decline among the Group of 20 economies, according to a recent report from the World Trade Organization.
Korea’s ranking in terms of export value moved down a notch from a year earlier in the cited period to No. 6 in the world. Korea was overtaken by France, whose exports remained nearly unchanged.
The country’s export-oriented economy has emerged as the biggest victim of the prolonged trade spat between the US and China, which combined receive nearly 40 percent of its total shipments abroad.
In the first eight months of the year, Korea’s shipments to China decreased 17.6 percent on-year, with those to the US beginning to shrink in June. The country’s exports to China and the US decreased at an alarming pace in the first 20 days of September -- by 29.8 percent and 20.7 percent, respectively.
Korea is closely connected to the world’s two largest economies in global value chains.
Its firms have shipped mainly intermediary goods to China, which are assembled into products for export. Intermediary goods account for nearly 80 percent of Korea’s exports to China.
But a decrease in Chinese exports due to higher tariffs imposed by the US has reduced imports of Korean intermediary goods. A sluggish domestic market in China amid an economic slowdown has also led to a fall in demand for imports from Korea.
When the trade friction began between the world’s top two economies more than a year ago, Korean exporters, particularly those exporting home appliances and other consumer goods, benefited from the higher cost of Chinese products on the US market. But that advantage has all but disappeared in recent months, with rising protectionism and the resurgence of local manufacturing industries in the US depressing demand for Korean products.
Korea also saw its exports to Japan and the EU decline 13.5 percent and 12.9 percent, respectively, from a year earlier in the first 20 days of this month.
The government’s plan to restructure the nation’s export markets risks precipitating a fall in the country’s shipments to the US, China, Japan and the EU. The proposal, unveiled earlier this month, calls for a de-emphasis on the four major markets so that they account for only 40 percent of the country’s exports in 2022, as compared with 53.4 percent in 2018. At the same time, the plan would seek to expand Korea’s exports to developing and emerging economies.
There is more room to increase shipments to the US, China, Japan and the EU, given that all four combined accounted for 67 percent of global gross domestic product last year. Beyond this, it makes no sense to overhaul an export structure focused on advanced markets, the end result of five decades of efforts by local firms to overtake world-class foreign rivals.
An established reputation in advanced countries makes it relatively easy for companies to make inroads into emerging and developing markets. Such markets are also more vulnerable to a global economic downturn triggered by a slowdown in developed economies.
The continuous slump in exports heightens concerns about the Korean economy, which has also been troubled with decreasing consumption and investment.
The Organization for Economic Cooperation and Development last week slashed its growth outlook for the country’s economy this year to 2.1 percent from its previous forecast of 2.4 percent in May. It noted that weak global trade and soft import demand from China, which have contributed to the slower-than-expected growth in Korea, are expected to persist.
What is needed to boost exports is to help local companies strengthen their competitiveness both in developed and developing markets in the long run by carrying out a package of pro-corporate measures, including sweeping deregulation.