The Korea Herald


Korea's trade to turn around in 2024 on tech recovery

Experts urge Korea to brace for global economic instability, US elections next year

By Choi Ji-won

Published : Dec. 12, 2023 - 18:10

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Cho Sang-hyun, head of the Korea International Trade Association's Institute for International Trade, speaks at a seminar on the outlook for global economy and trade for next year, at Trade Tower in Gangnam, Seoul, Tuesday. (KITA) Cho Sang-hyun, head of the Korea International Trade Association's Institute for International Trade, speaks at a seminar on the outlook for global economy and trade for next year, at Trade Tower in Gangnam, Seoul, Tuesday. (KITA)

While South Korea's trade balance is likely to record a surplus next year after three years of struggle, experts warned that the country should brace for worsening global economic instability and geopolitical complications.

At a seminar held by the Korea International Trade Association on Tuesday in Seoul, experts presented outlooks for next year's export environment and trade issues related to the US presidential election, along with geopolitical risks.

Overall, Korea's trade is projected to continue the recovery it has seen in the past two months, and could swing to the black for the first time in three years, according to KITA researcher Hong Ji-sang.

"Thanks to the rapid advancement of the artificial intelligence industry and the increase in the demand for global electronic devices next year, exports of semiconductors, solid-state drive and wireless communication devices are set to drive recovery," Hong said during the seminar.

Hong anticipated a slight increase in import volume due to a Brent crude price hike stemming from oil production cuts and instability in the Middle East. However, he projected exports to increase at a steeper rate, resulting in the first trade balance turnaround in three years since 2021.

Despite the uptick in trade, risks cannot be ruled out, Hong added, especially with the global economy expected to continue flagging next year.

The senior KITA researcher predicted the global economic growth rate to slow to just above 2.5 percent next year, while the global trade will maintain a low growth rate below 3.5 percent.

"While the restricted export environments are expected to continue into next year, mainly due to the sluggish consumption in the major developed countries -- such as the US and those of the EU -- and the faltering economy of the world's largest exporter, China, we must look out for possible upside factors, such as additional reflationary measures from China," Hong said.

Kim Seung-hyuk, an economist at NH Futures, urged local exporters to prepare for won-dollar exchange rate instability, as the rate is expected to see wide fluctuations next year.

“The won has a mix of strong factors, such as a shift to a trade surplus due to increased exports and the easing of austerity measures in the US and the European Union, as well as weak factors, such as rising geopolitical risks and economic slowdown in major countries,” Kim said, predicting the won-dollar exchange rate to decline largely compared to this year.

Kim elaborated that the dollar will weaken more in light of the increasing possibility of a US Federal Reserve interest rate cut. However, he added that there are also factors that could contribute to a higher dollar value in the year’s second half amid expectations of a soft landing for the US economy.

Combating the supply chain risk resulting from Chinese export curbs will be one of the biggest concert to watch out for next year, KoreaPDS senior analyst Son Yang-lim said.

The restriction of key minerals imposed recently by the Chinese government may likely worsen the US-China conflict, leading to a more severe supply chain risk for South Korea next year, Son warned.

To respond to the risk, Son called for “systematic risk management that takes into account production disruptions, logistics uncertainty and the possibility of export controls in resource supply countries.”

The spread of protectionism worldwide amid rising geopolitical uncertainty will also be a critical issue for Korea, Cho Seong-dae, the director for KITA’s Trade Studies and Cooperation Center, stressed.

Unpredictable instability lies ahead for the world, with high-profile elections happening in some 40 countries, including the US presidential election, on top of the ongoing Russia-Ukraine war and heightening tensions in the Gaza Strip.

"In light of the continued fragmentation in the global supply network, we can expect that the US -- which has so far stressed 'de-risking' with China -- will actually turn to 'de-coupling,' triggering further expansion of protectionism and the rise in policies among the major countries that secure their position in the high-tech and eco-friendly industries," Cho said.

Scott Lincicome, the director of general economics and trade at the Cato Institute think tank, said the US presidential election will further spur this America-first drive.

"Trade policies and pledges targeting the swing voters in the Midwest states and the Rust Belt area, who will determine the election outcomes, will be on the rise ... and in the Biden-Trump rematch, both sides will assert their will to foster manufacturing and strengthen the 'Buy America' policies," the US-based economist said.