US-China trade war to hurt Korean exporters

By Yoon Ja-young

Amid escalating tension between the United States and China on trade, concern is growing that Korean exporters will be the hardest hit. In response, the trade ministry has unveiled plans to diversify the country's export markets to overcome the problem.

Following U.S. President Donald Trump's $50 billion tariff on imports from China, Beijing retaliated with plans to levy 25 percent tariffs on U.S. soybeans, cars and airplanes, escalating tension in the trade war.

Experts warn that Korea is likely to be the hardest hit, stuck between the two superpowers. According to Hyundai Research Institute, Korea's annual exports to China are expected to drop by $29.26 billion due to the trade war, equivalent to 20 percent of goods shipped there last year. The figure is based on the estimation that Washington's 25 percent tariffs on Chinese goods will decrease China's exports to the United States by 10 percent.

“As China's exports to the United States decrease, Korea's intermediate goods exported to China are highly likely to be damaged,” said Kim Cheon-gu, a researcher at the institute. Beijing takes 78.9 percent of Seoul's total intermediate goods exports.

By sector, electronics are forecast to see $10.92 billion in losses, while IT and petrochemicals will each lose $5.6 billion.

Korea will face more dismal consequences if the trade war expands to a global level. According to the Korea International Trade Association, the country is expected to see a 6.4 percent drop in exports if the United States, China and the EU raises tariffs by 10 percentage points. Global trade will contract by 6 percent.

To overcome the trade war, the trade ministry is preparing a “new trade strategy.” This includes decreasing dependence on the United States and China, while diversifying exports markets. The ministry's goal is to make Korea the world's fourth-largest exporter.

Trade Minister Kim Hyun-chong

“The plan shows our will and vision,” Trade Minister Kim Hyun-chong told reporters Thursday, while unveiling the strategy.

As of 2017, Korea is the world's sixth-biggest exporter at $573.7 billion, $124.4 billion lower than that of Japan. As Korea has been seeing an annual 5.9 percent increase in exports since 2010, while Japan's rises 2.3 percent, the ministry explained Korea can surpass Japan in 2022 if it enhances its exports growth rate to over 6.6 percent.

He also stressed digital trade, setting up an environment where data can move freely across borders. “We plan to push for a mega FTA focused on digital trade with countries that share this vision,” the minister said.

The government also plans to restructure trade relations with the United States and China. They take 36.7 percent of Korea's total exports, but increasing trade protectionism in the United States and geo-economic risks in China show the country needs to diversify its export markets and key export items.

Kim said Korea and the United States should expand mutual investment and employment, and strengthen cooperation in energy and the Fourth Industrial Revolution based on the revised KORUS FTA. He also stressed services and investment negotiations with China and suggested an FTA between cities which would integrate regional economies and strengthen mutual trust.

He also stressed the administration's New Northern Policy and New Southern Policy, which aim at expanding cooperation with former Soviet countries as well as Southeast Asia. The government plans to focus on developing an Arctic sea route and signing FTAs with Eurasian Economic Union countries, on top of upgrading FTAs signed with Southeast Asian countries.