Korea must diversify export markets

Seoul needs bigger role in China-led trade initiative

By Kim Jae-kyoung

Korea faces mounting challenges in retooling its economy as U.S. President Donald Trump’s footloose protectionism is set to change the dynamics of the global economy and business landscape.

At a time of the highest-ever uncertainty in the global environment, it is urgent for the country to take its economy in fresh directions by opening new markets and renewing its global strategy.

It has been only two weeks since the businessman was sworn in as the 45th president but he has made controversial policy moves, jeopardizing alliances with key allies and heightening uncertainty in the global economy.

So far Trump has sent two clear messages to the world from an economic perspective.

First, his administration will not budge on his “America first” policy on trade, being tough and demanding of allies. Second, he will deploy all possible tools to reverse trade deficits regardless of the effects on other nations.

This means that in the coming years America-led globalization will wane, forcing countries to seek new trade partners. Also, with growing protectionism, strong domestic demand will be a must to cushion the blow from external shocks.

Against this backdrop, Korea must quicken its efforts to diversify its export markets for new sources of trade and investment. In particular, smaller firms relying heavily on a few major markets need to find new destinations.

“I doubt Korea will be the key target for Trump as the U.S. also needs allies. The focus of the U.S. administration will no doubt be China,” Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, told The Korea Times.

“However, if I were Korea, I would not lean toward the U.S. only since it could be dangerous now more than ever,” she added.

Antonio Fatas, professor of economics at INSEAD, echoed the view, saying, “In the long run you want to diversify your exports not to be dependent too much on a specific market.”

“But in the short run there is very little you can do,” he added. “Korea needs to be ready to use domestic spending as a way to handle a potential economic crisis.”

Renewing global strategy

More importantly, Korea needs to re-chart its long-term global strategy to tip the balance of its trade policy in favor of China and Southeast Asian countries over the U.S.

Trump’s protectionist measures are expected to cause trade friction with China and other Asian countries, which many believe will make the U.S. surrender its global leadership, increasing Beijing’s clout in the global economy.

To capitalize on upcoming changes, Seoul should make efforts not only to build a harmonious relations with Beijing but also to secure its role in the China-led Regional Comprehensive Economic Partnership (RCEP).

“If China continues to push for RCEP under the ASEAN+3 setup, Korea should try its best to be in the group and negotiate the best possible conditions,” Garcia-Herrero said. “It will be hard since China knows there is no substitute as the Trans-Pacific Partnership (TPP) is dead.”

On his inauguration, Trump signed an executive order for the U.S. to withdraw from the 12-country TPP, one of the largest free-trade agreements in history.

Disappointed at Trump’s nationalistic approach, some of the key allies of the U.S., including Europe, are already mulling shifting focus to China.

“America is our best friend. If that’s no longer the case, if that’s what we need to understand from Donald Trump, then of course Europe will look for new friends,” Jeroen Disselbloem, president of the Eurogroup told the media in late January.

“China is a very strong candidate for that,” he added.

Bolstering domestic demand

Another important implication is that domestic demand should be a new engine for Korea’s economy because protectionism will hamper the growth of global trade.

Therefore, while exploring new markets abroad, ING Asia-Pacific chief economist Tim Condon said the country should boost domestic demand by fostering the services industry.

“Countries that used export-led growth such as Korea need to find other routes (to stimulate growth),” Condon said.

“Korea needs to come up with new measures to bolster domestic demand other than just boosting the real estate sector.”

In order to boost the services industry, analysts said that politicians and policymakers should reform their mindset because shifting focus to services from manufacturing means more competition and fewer regulations.

“Politicians know what to do but they don’t do it because it is a question of political and economic power,” Fatas of INSEAD said.

“Changing competition, changing regulations, changing labor markets typically would leave someone worse off. That person has some power,” he added. “It is not lack of knowledge.”

Bills to revitalize the services industry and reform the labor market have long been pending at the National Assembly due to the resistance from opposition parties.