- Seoul, concerned about nation’s highest deficit since 1996, which was shortly before IMF bailout, has revived government-business meeting
- While government tries to boost exports, opposition says moves to participate in US-led crusade against China could damage trade
Falling exports and a growing trade deficit have set off alarm bells in South Korea, forcing the nation to dust off a government-driven campaign established decades ago to bolster sales of its goods overseas.
Exports, the pillar of the country’s trade-dependent economy, face headwinds amid dwindling global demand – caused by the tight monetary policies of major economies, China’s Covid-19 lockdown and the war in Ukraine – that sparked high energy prices.
A top opposition politician said the conservative government of President Yoon Suk-yeol’s moves to participate in the US-led crusade against China could damage Seoul’s exports there. Beijing is, by far, the largest buyer of South Korea’s products.
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The country’s trade surplus (where exports exceed imports) has been falling in recent years, from US$95.2 billion in 2017 to US$44.9 billion in 2020, and to US$29.3 billion last year.
It then fell even further to a shocking US$40 billion deficit (where imports exceed exports) as of November 20, the highest since the US$20.6 billion seen in 1996, shortly before the nation was swept up in the Asian financial crisis.
According to government statistics, exports have fallen for the first time in two years, slipping 16.7 per cent year-on-year to US$33.2 billion over the first 20 days of November. Imports decreased 5.5 per cent to US$37.6 billion in the same period.
Choo Kyung-ho, economy and finance minister, told the National Assembly earlier this month that foreign exchange reserves amount to a quarter of the country’s GDP, which the International Monetary Fund (IMF) considers large enough to fend off external shocks.
But alarmed by trade-related figures that have evoked the bitter memory of South Korea turning to the IMF in 1997 for a US$58 billion bailout – at the time, the organisation’s biggest ever – President Yoon has revived a government-business meeting aimed at finding ways to boost exports.
It last met in 2016, having been set up in 1965 under then President Park Chung-hee, an authoritarian leader credited for economic development.
“Exports have created the country’s economy of today,” said Yoon while presiding over Wednesday’s meeting, calling for “proactive and anticipatory” government measures.
Meanwhile Lee Jae-myung, head of the opposition Democratic Party of Korea, told party colleagues that exports, “the last redoubt [fortification] of the country’s economy” are “facing a serious crisis”.
South Korea’s exports to China over the first 20 days in November fell 28.3 per cent year-on-year, stretching the decrease to six consecutive months, a first since the countries established diplomatic ties 30 years ago.
Lee added: “I am very concerned about the negative impact on trade with China that could be caused by the government’s moves to participate in containing China”.
Analysts said fewer shipments to China are mainly due to decreased demand caused by its strict Covid-19 lockdowns as well as its efforts to replace imports, including those from South Korea, with locally produced goods.
Foreign exchange reserves, a key indicator representing a country’s capacity to stay afloat in international trade terms, dwindled US$2.76 billion in November from the previous month to US$414 billion, although the decrease was milder than the US$19.6 billion fall recorded in September.
The government’s moves appear to run against its avowed principle of letting the market sort itself out, but Yoon has defended his policy by citing the multitude of global crises through which individual firms cannot navigate alone.
The government’s measures include a plan aimed at enhancing South Korea’s participation in Middle East nations’ major energy, infrastructure, nuclear power generation and other manufacturing sector projects.
The Yoon government has touted 6 memorandums of understanding (MOUs) on investment deals amounting to around US$29 billion, signed by Saudi Arabia and Korean businesses this month.
The two nations have agreed to work more closely on Neom City, which is being built in northwestern Saudi Arabia, and on other projects.
In an effort to boost exports to China and reduce the bilateral trade deficit, South Korea plans to expand support for businesses involved in high-end consumer goods and advance into financial and environment sectors that are relatively open to foreign investment.
In line with China’s 2060 zero carbon emissions goal, Seoul will also help South Korean businesses take part in smart city, smart farm, green energy and green mobility projects in China. China is South Korea’s largest trade partner, absorbing a quarter of the country’s total outbound shipments, according to the government.
South Korea will also boost and diversify trade and investment in resources, digital economy, green energy and smart cities elsewhere in Asia.
To promote exports to the US, the government will help businesses to participate in massive US infrastructure and eco-friendly investment projects and expand investment in its ally to cope with the restructuring of the global supply network, aimed at reducing reliance on China and Russia.
Seoul plans to expand its outreach to the US to address pending issues including trade restrictions under Washington’s Inflation Reduction Act (IRA) and the control of semiconductors exported to China, which heavily relies on foreign manufacturers for them.
With European Union partners, South Korea aims to boost sales of military items amid the protracted Russia-Ukraine war and bolster sales of nuclear power generation.
South Korea exports billions of dollars of weapons to Poland and signed a MOU in October to help build nuclear power plants there.
In an effort to find new markets, the government is eyeing South American nations by pushing to sign a free-trade agreement with the Mercosur trade bloc and deepen ties with Chile, Brazil and other resource-rich nations, the trade ministry said.
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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.
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