(August 4 Korea Herald EDITORIAL)

Export alarm
Korea Posts Trade Deficit for 4 Consecutive Months; time to develop new strategies

South Korea posted a trade deficit for the fourth consecutive month this week.

It again failed to escape a trade deficit in July as imports rose more than exports, due to high energy prices.

Exports rose 9.4% year-on-year to $60.7 billion last month, according to the Ministry of Trade, Industry and Energy, but were overtaken by imports, which rose 21.8% to $65.37 billion.

It is the first time in 14 years after the 2008 global financial crisis that the country has suffered a trade deficit for four consecutive months.

The accumulated trade deficit from January to July has already exceeded $15 billion. This is an all-time high for the seven-month period. The figure went well over $13.3 billion in an annual trade deficit in 2008. This is no trivial matter.

It is disconcerting to note that the trade deficit has grown steadily for three months, from $1.6 billion in May to $2.57 billion in June and $4.67 billion in July.

It seems difficult to dismiss this data as a temporary phenomenon caused by the war in Ukraine and disruptions to global supply networks.

The broader outlook isn’t bright either.

As the United States and other major economies have raised interest rates sharply, signs of recession are emerging. Exports to these countries are expected to slow.

If the trade deficit continues to grow, it is likely that the current account, which includes service transactions, dividends and interest income, will also turn red. A current account deficit can lead to international credit rating downgrade, Korean Won depreciation, foreign capital outflow, and currency shortage.

The government says countries highly dependent on imports for their energy, such as Japan, Germany and France, have also suffered from trade deficits. But that does little to dispel the unease over Korea’s own deficit.

It is unusual for Korea to run trade deficits with China for three consecutive months.

South Korea has maintained a trade surplus with China every year for nearly 30 years.

Its trade deficit with China is largely attributable to China’s zero-COVID policy, which has locked down major cities. And yet, the problem is worrying, given that China is Korea’s largest trading partner. If its trade deficit with China persists, it will erode the foundations of Korea’s export-oriented economy.

About 90% of Korean exports to China are intermediate goods used to produce finished goods.

However, as Chinese companies have developed their technologies in recent years, their demand for Korean-made intermediate goods is declining. Meanwhile, Korea’s dependence on Chinese raw materials is increasing. Korea depends on imports from China for almost 90% of its battery materials.

Four consecutive months of trade deficit indicates that Korea needs to check its export system and industrial structure.

The country cannot find a solution by simply waiting for international oil and commodity prices to fall.

Companies should do their utmost to diversify their export markets while ensuring stable supply networks. The government must support them in every way possible.

Above all, he should find ways to turn trade with China black and reduce the country’s overreliance on Chinese raw materials, among others.

The government must discover and support promising export areas – such as the defense industry and nuclear reactors – with the aim of opening up new markets.

The government plans to announce a package of export measures this month. They should contain measures that can be of substantial assistance to exporting companies, such as the expansion of export financing, support for market development and supply networks.

The international economy is being realigned with ideology and security amid growing tensions between the United States and China and between the United States and Russia. As an export-based economy, South Korea will inevitably see its room for maneuver shrink. Along with taking export measures, it is time to develop new export strategies to survive in a changing business environment.

About Emilie Brandow

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