South Korea’s exports have been robust since last year but may show a less-than-expected performance this month and in the second half of this year amid global trade protectionism.
The South Korean government is moving to take measures, including expanding export insurance, to keep up the momentum but is expected to face an uphill battle due to growing protectionism.
“Monthly exports from South Korea are likely to go down this month due to less business days and the base effect related to ship exports in mid-June 2017 that added up to US$7.37 billion,” the Ministry of Trade, Industry and Energy explained, adding, “Besides, global trade protectionism, the ongoing trade disputes between the U.S. and China and between the U.S. and the EU, interest rate hikes by the Fed, and its repercussions on financial market volatility and emerging market vulnerability can have a negative effect on exports from South Korea.”
According to the Korea Customs Service, the exports totaled US$12.4 billion for the first 10 days of this month, up 2% from a year ago. The amount was US$51.27 billion in June 2017. June 2018 has one more non-business day, for local elections, than the same month of the preceding year. South Korea showed a year-on-year export growth for the 18th consecutive month until March this year, when the exports totaled US$51.58 billion, but the uptrend stopped in April and this month is likely to show a negative growth as well.
With a G7 joint statement thwarted by the United States, global trade protectionism is showing signs of escalating. The EU, Canada and Mexico are working on retaliatory measures against U.S. tariffs on steel. China is going to impose retaliatory tariffs immediately after the U.S. reveals details on its 25% tariffs on Chinese products.
The South Korean economy is likely to be affected during the course. Today’s protectionist trade policy mainly targets steel, automobiles and semiconductors and these items account for 34% of South Korea’s total exports. Besides, more exports to emerging markets may not be a sufficient solution in that China has already overtaken South Korea for major business items such as consumer electronics and mobile phones. And interest rate hikes by the Fed are likely to lead to economic contraction in practically all of those markets.