ED Fallout of trade row

Korea should establish balanced economic structure

The Korean economy is feared to take the brunt of a looming trade war between the United States and China. In fact, few countries face more serious consequences from the G2's intensifying trade row than Korea, which relies heavily on exports.

The expected fallout of the trade dispute will worsen as it is likely to deal a serious blow to exports to both China and the U.S. -- the nation's main trading partners.

Official data shows 27 percent of Korean-made goods were shipped to China in the first five months of the year, while 11 percent went to the U.S. This means the G2 accounted for 38 percent of total exports. In other words, Korea's export dependence on the two economies is too high. So is the risk of trade with them.

Last week U.S. President Donald Trump announced the imposition of 25 percent tariffs on Chinese goods worth up to $50 billion. In retaliation, China decided to levy an additional 25 percent tariffs on 659 U.S. goods worth $50 billion.

The tit-for-tat imposition of tariffs will inevitably lead to a fall in trade between the U.S. and China. Korea will also suffer a tangible decline in its exports to the two. A report predicts that if U.S. imports of Chinese goods drop by 10 percent, Korean shipments to China might decrease 20 percent.

The impact of the decline could be more worrisome, not least because about 80 percent of Korean exports to China are intermediary goods that are assembled there and shipped overseas as finished products. As a result, the rising protectionism could disrupt China's strong processing trade system. It could also trigger a chain reaction in Korea and other countries that supply materials and parts to China.

Thus, the U.S.-China trade friction may spread to the EU and other parts of the world, triggering a global trade war. This is cause for concern, particularly for the export-oriented Korean economy.

The Korea International Trade Association (KITA) predicted that if the U.S., China and the EU increase overall tariffs by 10 percentage points, Korean exports will decrease by $36.7 billion, or 6.4 percent of the country's entire exports last year.

Policymakers and businesspeople cannot sit idly by only to see trade protectionism hit the Korean economy hard. They should spare no efforts to ride out the roaring wave of the trade row. Most of all, it is urgent to reduce the nation's undue reliance on exports and establish a balanced economic structure by boosting domestic demand.