Trade War between U.S. and China: S. Korean Economy Can Get into Trouble with US-China Conflict Growing | BusinessKorea

Friday, October 20, 2017

The South Korean and Australian economies can get into trouble if economic tensions rise between the U.S. and China.
The South Korean and Australian economies can get into trouble if economic tensions rise between the U.S. and China.
SEOUL,KOREA
22 August 2017 - 4:30pm
Jung Suk-yee

The US-based think tank Conference Board recently said that the added value the U.S. obtains by exporting to China accounts for 0.7% of its GDP and the added value China obtains by exporting to the U.S. accounts for 3% of its GDP. It also mentioned that the added values the EU and Japan obtain by exporting to China account for 1.6% and 2.1% of their GDPs, respectively.

The think tank remarked that a trade war between the United States and China is likely to have a greater negative effect on China as shown by the figures and yet such a war may cause U.S. consumers to suffer to a large extent from inflation.

The Financial Times, in the meantime, pointed out that existing statistical data based on not the places of origin of components but finished products tend to exaggerate bilateral trade imbalance as the degree of complexity of supply chains is on the rise. In the same context, the Conference Board said in March this year that the U.S. trade deficit with China was approximately US$200 billion in 2014 when based on the added value calculation whereas it amounts to US$360 billion by the previous method.

Countries relying on intermediate goods exports can take a direct hit from a trade war between the two superpowers. According to the think tank, the added value South Korea obtains by exporting to China is equivalent to 6.8% of its GDP and the ratio is 4.4% in the case of Australia, a major raw material exporter. This implies that the South Korean and Australian economies can get into trouble if economic tensions rise between the U.S. and China or the Chinese economy wobbles as a result.

At present, China is the country with the largest trade surplus in the world and South Korea is the country with the largest trade surplus with China in the world. According to Bloomberg data, China recorded a trade deficit with about 40 countries last year, when South Korea posted a trade surplus of US$72.2 billion with China to top the list of the 40 or so countries. It was followed by Switzerland (US$27.5 billion), Australia (US$23 billion), Brazil (US$20.8 billion) and Malaysia (US$14.7 billion). Bloomberg pointed out these countries are particularly vulnerable to regional disputes and geopolitical conflicts involving China. 

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