South Korea is enjoying a continuous upswing in exports. According to the monthly merchandise trade data by the World Trade Organization or WTO, South Korea’s outbound shipments jumped 18.5 percent in the January-September period this year to show the fastest growth among the world’s top 10 exporters. Previously, there were concerns that Korea might face a crisis in exports due to a series of unfavorable factors such as the U.S.’ growing trade protectionism, China’s economic retaliation against South Korea over the deployment of the THAAD missile defense system, and security risks triggered by North Korea’s nuclear weapons development. But South Korea has been weathering the challenges to continue to expand its exports. Here is Moon Byung-ki, chief researcher at the Institute for International Trade, to analyze Korea’s rise in exports.
South Korea’s exports have seen a rebound this year, along with the global economic recovery. Other countries have also seen their markets and exports picking up, but Korea has been on a particularly fast recovery track. Last year, Korea ranked eighth in the world in the overall export rankings. But this year, it moved up two spots to sixth place, outperforming France and Hong Kong. Also, Korean exports accounted for 3.33 percent of total global exports in the first half of this year, surpassing the previous record of 3.19 percent set in 2015. On the back of the positive signs, South Koreas’ trade volume is expected to reach 1 trillion US dollars this year for the first time in three years.
Korea will commemorate Trade Day on December 5 to review the nation’s exports and imports for the past year. On that day, we’ll likely hear good news about Korea’s trade rising back to 1 trillion US dollars this year, a significant benchmark that it has not reached since 2014, on the back of the fast growth in exports. According to the WTO’s analysis, global merchandise exports increased 9.2 percent in the first nine months of this year, with South Korea posting 18.5 percent to mark the highest gain among the 10 largest exporting countries. Thanks to the higher on-year growth than that of major economies, Korea regained its standing as the world’s sixth-largest exporter this year, after it fell two notches in 2016. In fact, South Korea’s exports declined 8 percent in 2015 and 5.9 percent in 2016. How can we explain the nation’s big recovery in its exports this year?
An upturn in the global economy is the main contributor. Both advanced and developing countries have seen an economic recovery this year—a trend that has not been seen since 2010. Also, prices of oil and raw materials are rising. That means resource-rich countries in Central and South America as well as in the Middle East are showing signs of improvement in their economies. South Korean outbound shipments to emerging economies now account for 60 percent of its total exports. Other than its two major export markets, namely, the U.S. and China, Korea is diversifying its export destinations into other regions, including India and the Association of Southeast Asian Nations, or ASEAN.
Behind Korea’s strong export growth this year, there are various factors such as an upsurge in global demand, a rise in unit costs of Korea’s major export items, including semiconductors and chemical and electronic products, and brisk shipments to emerging economies. On a more positive note, the qualitative aspects of exports have improved as well.
Exports by local venture startups are expected to reach a record-high as exporters of optical equipment and medical devices, which require high technical skills, are faring pretty well. High value-added products related to the fourth industrial revolution, such as electric vehicles, robots, high-tech new materials, bio-health goods and organic light-emitting diode (OLED) items, are emerging as a new engine of exports. This is a very positive development in terms of qualitative improvement of exports. In another encouraging sign, Korea has gradually reduced its export dependence on the G2 nations—the U.S. and China, while seeking more trade with India, Central and South America, and the Commonwealth of Independent States to better cope with various external risks.
Exports by Korean venture firms amounted to 18 billion US dollars last year, but they are expected to reach an all-time high of 20 billion dollars this year. Among new-growth industries, overseas shipments of electric cars, in particular, jumped 100 percent year-on-year. Korean exports have improved both in quantity and quality to be on track to post their highest-ever global market share, taking the lead in economic growth and job creation.
Korea’s economic growth this year is forecast to exceed 3 percent, with exports’ contribution to economic growth reaching nearly 80 percent. Merchandise trade has been stagnant since 2012 due to sluggish global economic growth and falling oil prices. Fortunately, it has improved this year to contribute more to economic growth. A higher growth rate and better corporate performance are encouraging companies to make more investment in facilities, increasing production and creating more jobs. In June this year, employment in the manufacturing area rose for the first time in a year. In the June-September period, employment growth in the manufacturing sector accounted for about 10 percent of the total job growth.
In the first nine months of the year, the ratio of exports’ contribution to Korea’s economic growth was 78.5 percent, the highest in five years since 2012. Backed by the robust exports, the Korean economy is sure to expand 3 percent this year. The growth rate has hovered in the 2-percent range since 2012, despite a brief rebound in 2014. But now, it seems the local economy is nearing the end of a period of low growth. The expansion of exports is great news for job creation, as the number of new employees in the manufacturing sector began to rise in June. But the export environment is not entirely favorable. On November 21, the U.S. International Trade Commission issued safeguard measures on Korean washers, calling for a 50 percent tariff rate on washers made by Samsung and LG, when they exceed an import quota of 1.2 million units. On November 22, the Korean currency fell below 1,090 won per dollar, raising alarm bells for local exporters.
Korean manufacturers that will be subject to the U.S.’ import restriction will inevitably face a setback in their plan to export their goods. Korean companies and the government alike should closely monitor the trend of Washington’s safeguard and trade protectionism measures. There are economic uncertainties as well. The U.S. is expected to raise its key interest rate in December and next year, while oil prices are rising. But the situation could change, depending on how the security conditions in the Middle East will evolve and how Venezuela may overcome its economic crisis. So the government must watch the situation carefully. Also, the Korean currency is getting stronger against the dollar and the Japanese yen as well. The appreciation of the won can affect price competitiveness of Korean exporters to hurt their business profits. It is necessary to prepare in advance for wide fluctuations in the exchange rate.
Major economies, such as the U.S. and Europe, are taking a monetary tightening approach, while trade protectionism is spreading. The volatile Middle East is making oil prices unstable, and the won-dollar exchange rate continues to fall. Against this backdrop, Korean exporters may face more uncertainties down the road. Luckily, Korea has been able to post the favorable export growth this year in the face of the harsh trade environment. The nation should hopefully come up with effective measures to get over the challenges lying ahead and continue with the strong upward momentum in exports.