South Korea posted a record-high trade deficit of $10.3 billion during the first half of this year.
The figure exceeds the former record of $9.1 billion in 1997 when the Asian currency crisis hit the nation.
The nation recorded trade deficits for three consecutive months from April. It is the first time since the 2008 financial crisis that a three-month streak of trade deficits has occurred.
Compared with the same period last year, export increase rates fell to 5.4 percent in June, dipping below 10 percent for the first time after 15 straight months.
South Korea’s trade deficit is showing signs of becoming chronic.
Companies say they are more concerned about exports for the second half of this year.
According to a survey of 12 export industries by the Federation of Korean Industries, businesses expect exports to increase a mere 0.5 percent during the second half from a year earlier.
The country’s annual trade balance may go in the red for the first time in 14 years after 2008.
Above all, export conditions for China and the US, Korea’s two main markets, are worsening.
Korea’s exports to China decreased in April and June. It recorded a trade deficit with China in May and June.
The US economy is expected to mark a negative 1 percent growth in the second quarter after a negative 1.6 percent growth in the first quarter.
The US is also expected to keep raising interest rates to strengthen the US dollar. Then Korea’s import prices will have to rise.
South Korea’s latest string of trade deficits is ascribable to energy and raw material prices soaring due to supply chain disruptions caused by the Ukraine war.
It is difficult to reduce the import of raw materials, whose prices fluctuate due to external factors.
There are no signs that the war will be ending soon.
Export is the main pillar of the Korean economy, but its conditions are worsening.
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said on Sunday that the government will increase trade finance available to small and medium-sized exporters by about 40 trillion won ($31 billion) this year from its planned 261.3 trillion won. He also announced plans to support their logistics expenses and expand their joint distribution centers.
These measures are needed, but the current crisis is too severe to be resolved by such short-term measures.
One fundamental solution is to secure advanced technologies that competitors cannot catch up with easily. South Korea needs to widen its lead from its chasers.
In order to secure technological excellence, Korea should foster an environment that can produce top-level talent. To do so, deregulation in various fields such as education and labor is essential.
The government will also have to push a multitude of export policies, such as securing supply chains of materials and components and diversifying markets.
Korea should also seek to reduce the proportion of exports going to China. If a country depends too much on another country, particularly one with a cpntrasting ideology, it may be in a bind. This is something that many European countries who are dependent on Russia for energy are experiencing right now.
President Yoon Suk-yeol’s attendance at the North Atlantic Treaty Organization summit is an opportunity for Korea to nurture nuclear and defense industries as its next-generation export items targeting Europe.
Private companies lead the nation’s exports, but the role of the government in backing them is essential.
Korea lives on exports. If import outpaces export, the national economy will be in peril. The president must roll up his sleeves to turn the trade balance back to surplus.
The National Assembly should support the government’s response to this crisis through legislation. Fortunately, on Monday, the ruling and main opposition parties reached an agreement to compose Assembly committees. The parliament was effectively closed for 35 days before Monday after its second half had already started. Warning sounds on Korea’s economic crisis are getting louder. When it comes to reviving the economy, elected officials must show bipartisanship.
By Korea Herald (firstname.lastname@example.org