What type of economic growth would be ideal for a country like Korea that lacks viable natural resources? The correct answer would be growth balanced between the twin engines of exports and domestic demand.
Policymakers and academics have been voicing a desperate need to boost domestic consumption, generally known to be more instrumental in creating jobs than exports. But revitalizing domestic demand is not easy, given widening economic polarization, weaker trickle-down effects and underdeveloped service industries.
In contrast, high export growth has been taken for granted for decades. Last year the country became the world’s seventh country to achieve the $1 trillion trade landmark. This traditional locomotive of the Korean economy, more recently is losing steam amid the ever worsening external business environment.
According to the Ministry of Knowledge Economy, exports by Asia’s fourth-largest economy fell 6.2 percent in August from a year earlier to $42.97 billion while imports dipped 9.8 percent to $40.93 billion, generating a trade surplus of $2.04 billion. The August export drop was better than the revised 8.8 percent fall in July but was the sixth month of annual decline this year ― Korea’s year-on-year export growth was positive only in February and June this year at 16.4 and 1 percent respectively.
For the January-August period, trade amounted to $710 billion, down 0.9 percent from the same period of last year. Last month’s surplus was a typical gain usually seen during the economic slump as both exports and imports shrink. The August export volume of $42.97 billion was the smallest since January’s $41.22 billion.
Most worrisome is that shipments to China, Korea’s largest export market taking one-quarter of all shipments, fell 5.6 percent during the first 20 days of August year-on-year. Exports to the world’s most populous country from January to July this year were down 2.1 percent from a year earlier, the first drop since the 2009 global financial crisis.
The lion’s share of the blame should be laid on the eurozone crisis that has dampened demand almost across the world and the outlook for the rest of the year is bleaker. What’s more, a double whammy of patent lawsuits and trade retaliations are slamming our exporters under a tidal wave of trade protectionism, as seen in Apple’s lawsuit against Samsung Electronics.
There is no simple remedy for sluggish exports but the government needs to join forces with businesses to explore new niche markets abroad. Specifically, it should consider expanding support for overseas marketing and increasing trade finances for exporters.
To minimize damage from trade disputes, the government must be alert to keep track of the latest developments in our major export markets.