South Korea logged the sharpest drop in exports among the world’s 10 largest economies in terms of outbound shipments, according to data compiled by the World Trade Organization.
The countries include China, United States, Japan, Germany, France, the Netherlands, Hong Kong, Italy, United Kingdom and Korea.
Korea’s exports plunged to $317.3 billion in the January-July period, 8.94 percent down from a year earlier.
Except China which saw a growth of 0.59 percent, the other countries also saw their exports shrink. But Korea’s exports plunged more than three times as fast as the overall average decline of 2.84 percent. They slid further than even Hong Kong (minus 6.74 percent) whose economy has suffered severe distress from the massive protests by citizens.
Much of Korea’s steepest drop in exports is attributable to its vulnerable export structure. It relies too much on a single item—semiconductors -- and two markets, China and the US.
Overseas sales of memory chips, which account for about 18 percent of Korea’s total exports, contracted 25 percent on-year during the period. China and the US are Korea’s largest (26.8 percent) and second-largest (12 percent) export markets, respectively. Exports to China have retreated for 11 straight months, while shipments to the US have declined for four successive months since June.
However, the more fundamental reason for Korea’s prominently waning exports, which shrank 10 months in a row from December last year, lies in the rapid deterioration of its export competitiveness.
Korean exporters have lost price competitiveness, among other factors, due to economic policies that have increased their burden due to hikes in the minimum wage, reducing working hours and raising corporate taxes.
Under these policies, they cannot but be tempted to leave Korea for better conditions. Overseas direct investments by Korean companies increased to $15.01 billion in the April-June period, hitting a new high for the second consecutive quarter. Large companies are increasingly relocating their production bases abroad.
The trade war between the US and China is now shifting to another front -- US vs. European Union. Export conditions are likely to deteriorate shortly. To make matters worse, the world economy is mired in uncertainties. The Global Economic Policy Uncertainty Index, devised by three professors -- Scott Ross Baker at Northwestern University, Nick Bloom from Stanford University, and Steven J. Davis at the University of Chicago Booth School of Business -- has surged to its highest level since 1997.
President Moon Jae-in’s administration is singing the same old tune: plans to increase fiscal support for export marketing and market diversification. But such measures are not enough to revive atrophying exports.
Its top-priority task should be to improve the business environment that constricts corporates.
But the administration seems to care little about it and has accepted most labor demands, rolling out labor-friendly measures that discourage businesses.
When Moon held talks with the leaders of four major economic organizations on Friday, one of them asked him to “deliver a business-friendly message that can encourage companies.” This plea indicates how much he has alienated the business community.
“We recognize that the global economy continues to disappoint,” Kristalina Georgieva, new managing director of the International Monetary Fund, said in an interview with the Wall Street Journal on Thursday. She warned countries to act now and make growth-spurring public investments or structural changes before conditions weaken further.
“Christine Lagarde (ex-IMF chief) would say when the sun is shining it is the time to fix the roof,” she said. “I’m coming when there are clouds and occasional raindrops and my message is there’s no more possibility to delay fixing the roof.”
It is about time the Moon administration fixes the roof of the Korean economy whose growth relies mostly on exports. If it dawdles, the Korean economy will founder when a large storm rages over the global economy.
It is urgent to dump policies that have eroded Korea’s export competitiveness and change the course in the direction of motivating businesses. Not much time is left.