Widening deficit feared to aggravate economic recession
Korea's trade deficit reached $4.67 billion in July. This marks the first time since the 2008 global financial crisis that Korea suffered a trade deficit for four consecutive months. The deficit continued to surge from $1.6 billion in May and $2.6 billion in June. This is stoking concerns as the trade surplus has been buttressing the national economy.
The aggregate trade deficit is expected to surpass $15 billion this year, more than the $13.27 billion annual shortfall in 2008. Should the current trend continue, the deficit will likely exceed the record high $20.6 billion set in 1996. Most worrisome is the continued decline in exports to China, the largest trading partner for the nation.
According to the Ministry of Trade, Industry and Energy (MOTIE), the nation's exports stood at $60.7 billion in July, up 9.4 percent from a year earlier. This was the highest amount posted in the same month. It is encouraging for the nation to fare well in exports despite the ongoing global economic recession. Yet, what matters is the drastic rise in imports, which is sharply increasing the trade deficit. MOTIE ascribed the rise to the soaring prices of international energy and resources, affected by the protracted war between Russia and Ukraine.
The widening trade deficit is feared to exacerbate difficulties in foreign exchange policies because of a decreasing influx of U.S. dollars. In fact, the nation's foreign exchange reserves shrank by $23.5 billion over the last four months, owing to the need to stabilize the volatile foreign exchange market and curb the depreciation of the Korean won. Worse still, the nation saw a growing deficit in trade with China.
It was the first time in 30 years that Korea posted a shortfall in trade with China for three straight months. In July, the deficit amounted to $575 million, due mainly to a drop in outbound shipments to the neighboring country, following lockdowns in Shanghai to tackle the COVID-19 pandemic. In the second quarter of this year, exports to China shifted to a 3.1 percent decline.
The Yoon Suk-yeol administration has been pressured by the United States to join the U.S.-led "Chip-4 Alliance." Posing another challenge, China has been asking Korea to abide by its "Three Nos" pledge regarding the Terminal High Altitude Area Defense (THAAD) system. China is widely expected to step up retaliation over the THAAD issue even though a decision was made during the previous Moon Jae-in administration regarding the anti-missile system. This shows Seoul's position of being sandwiched in the midst of an economic and security war between the two superpowers.
The Yoon administration should double down on efforts to maintain friendly relations with China to minimize possible adverse effects on the Korean economy. For this, the government should exercise effective diplomatic caliber. It should map out a package of measures to sharpen the competitive edges of Korea's exports. And such efforts should encompass all related sectors such as politics and businesses as well as the government.
Korea's trade deficit reached $4.67 billion in July. This marks the first time since the 2008 global financial crisis that Korea suffered a trade deficit for four consecutive months. The deficit continued to surge from $1.6 billion in May and $2.6 billion in June. This is stoking concerns as the trade surplus has been buttressing the national economy.
The aggregate trade deficit is expected to surpass $15 billion this year, more than the $13.27 billion annual shortfall in 2008. Should the current trend continue, the deficit will likely exceed the record high $20.6 billion set in 1996. Most worrisome is the continued decline in exports to China, the largest trading partner for the nation.
According to the Ministry of Trade, Industry and Energy (MOTIE), the nation's exports stood at $60.7 billion in July, up 9.4 percent from a year earlier. This was the highest amount posted in the same month. It is encouraging for the nation to fare well in exports despite the ongoing global economic recession. Yet, what matters is the drastic rise in imports, which is sharply increasing the trade deficit. MOTIE ascribed the rise to the soaring prices of international energy and resources, affected by the protracted war between Russia and Ukraine.
The widening trade deficit is feared to exacerbate difficulties in foreign exchange policies because of a decreasing influx of U.S. dollars. In fact, the nation's foreign exchange reserves shrank by $23.5 billion over the last four months, owing to the need to stabilize the volatile foreign exchange market and curb the depreciation of the Korean won. Worse still, the nation saw a growing deficit in trade with China.
It was the first time in 30 years that Korea posted a shortfall in trade with China for three straight months. In July, the deficit amounted to $575 million, due mainly to a drop in outbound shipments to the neighboring country, following lockdowns in Shanghai to tackle the COVID-19 pandemic. In the second quarter of this year, exports to China shifted to a 3.1 percent decline.
The Yoon Suk-yeol administration has been pressured by the United States to join the U.S.-led "Chip-4 Alliance." Posing another challenge, China has been asking Korea to abide by its "Three Nos" pledge regarding the Terminal High Altitude Area Defense (THAAD) system. China is widely expected to step up retaliation over the THAAD issue even though a decision was made during the previous Moon Jae-in administration regarding the anti-missile system. This shows Seoul's position of being sandwiched in the midst of an economic and security war between the two superpowers.
The Yoon administration should double down on efforts to maintain friendly relations with China to minimize possible adverse effects on the Korean economy. For this, the government should exercise effective diplomatic caliber. It should map out a package of measures to sharpen the competitive edges of Korea's exports. And such efforts should encompass all related sectors such as politics and businesses as well as the government.
