ED Alarming trade deficit

Nation should diversify export markets, cut energy consumption

Korea's trade deficit in the first half of the year exceeded $10 billion, hitting a record high. Exports in the January-June period showed the best performance ever, but were far outweighed by import growth due to a surge in energy costs. According to the Ministry of Trade, Industry and Energy, overseas shipments in the first six months increased 15.6 percent year-on-year to $350.3 billion, but imports jumped 26.2 percent to $360.6 billion. This increase resulted in a trade deficit of $10.3 billion, the widest trade shortfall ever for the first half of the year.

The previous record was set during the 1997 Asian financial crisis, when the trade shortfall in a half-year period reached $9.16 billion. The nation also registered the imbalance for three consecutive months ― another first since the third quarter of 2008 amid the global financial crisis. It is, of course, premature to fall into a panic as the more comprehensive current account balance remains in the black. However, few could deny that the record-high half-year trade deficit is a bad economic indicator.

Moreover, export growth will likely slow down in the latter half of the year, widening the trade gap further. Suppose the trade shortfall becomes chronic, resulting in simultaneous trade and fiscal deficits. In that case, the nation could fall into an economic crisis as the twin deficits would weaken the local currency and deplete foreign exchange holdings. To maintain robust outbound shipments, Korea should keep its technological lead through public-private partnerships, diversify export markets and secure an energy supply network.

More specifically, Korean exporters must reduce their reliance on the Chinese market and diversify shipment destinations to Europe and India. Against this backdrop, the government plans to hold a joint meeting of the public and private sectors later this month. It is natural for the government to provide extensive support to Korea's exporters, as the nation heavily depends on outbound shipments for growth.

No less important is how to reduce energy imports. Korea's per-capita energy consumption is the highest among the OECD member nations. The current energy crisis cannot be solved by stopgap measures, such as a fuel tax cut. The government should develop and implement policies to induce people to reduce energy consumption. It also should hurry to change energy-intensive industrial structures and heighten energy efficiency.