Extensive steps needed to boost exports, economy
The national economy has been mired in a slump amid bleak economic indicators including exports, domestic consumption and production. The Ministry of Trade, Industry and Energy unveiled data Thursday, showing Korea's exports stood at only $52.24 billion in May, down 15.2 percent from a year earlier.
That marked eight straight months of declines, which was the longest drop since a fall in outbound shipments that lasted from December 2018 to January 2020. Worse still, the trade shortfall reached $2.1 billion, registering a deficit for 15 consecutive months. The cumulative trade shortfall amounted to $27.3 billion as of May this year.
The shortfall is largely attributed to a drastic drop in outbound shipments of semiconductors, the country's No. 1 export item, which stood at only $7.37 billion in May, down 36.2 percent year-on-year. Numerous economic indicators have remained lackluster. Industrial output dropped 1.4 percent in April from a month earlier, while consumer spending also declined 2.3 percent. The inventory rate for the manufacturing sector rose to 130.4 percent, the highest since 1985.
The prolonged trade shortfalls, in particular, spark grave concerns over the Korean economy, which relies heavily on external trade. It will result in the nation's downgraded external credit, possible outflows of capital amid the depreciation of the Korean won, thus further deteriorating the economic slowdown. The decline is more serious than ever as it affects exports of almost all leading items except automobiles and major markets such as the United States, China and the EU.
China currently accounts for 20.3 percent of Korea's entire exports, compared to 18.1 percent for the United States. In 2010, the reliance on China was far greater with the Asian country distancing the U.S. by more than 18.8 percentage points.
This accentuates the need for Korea to make a shift from the hitherto concept of the so-called "anmi-gyeongjung" (U.S. for security and China for economy). This has been prompted by the geo-economic structure due to the escalating conflicts between the two superpowers.
Korea needs to efficiently cope with the sudden change in global markets. It needs to retain national prowess to catch up with the changes in world markets. China has been rapidly fortifying its competitiveness in major industries. For starters, although Korea accounted for 3.2 percent of global export markets in 2017, the proportion continued to decrease to 2.7 percent last year.
In contrast, China's share increased from 12.7 percent to 14.4 percent while Taiwan's proportion rose from 1.7 percent to 1.9 percent and Vietnam's share from 1.2 percent to 1.4 percent during the corresponding period.
A changed trade regime requires a different strategy. Korea Inc.'s future cannot be guaranteed unless it effectively and promptly tackles the changes. While maintaining tight security in alliance with the U.S., it needs to expand its export markets by reducing its reliance on China.
For Korea, 40 percent of its exports arrive in China and the U.S. Such a heavy dependence on certain markets will amplify the adverse impact arising from any changes. Given this, the Yoon Suk Yeol administration should adopt export diversification as the most urgent state task, making it the core of its industrial and trade policies.
Efforts should be made to expand markets in Southeast Asia, the Middle East, Europe and Latin America. K-food and entertainment companies have recently been finding successes in the U.S. and European markets. They should be utilized as examples of exploring new markets.
It is proper for the Yoon government to have announced a plan to establish a bio-cluster complex benchmarking the Boston Cluster of the U.S. The administration has decided to pick bio and medicine as the nation's strategic items. It features a 35 percent tax credit for enterprises investing in relevant facilities.
Besides bio and medicine, further assistance should be provided to nurture future industries such as atomic energy, defense, artificial intelligence (AI) and robotics.
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