South Korean manufacturers are increasing their overseas production amid the ongoing trade war between the United States and China. The companies, which are highly dependent on exports, are trying to avoid trade protectionism by doing so.
According to the Bank of Korea, South Korea’s net exports based on intermediary trade totaled US$12.65 billion from January to November last year. This amount is close to the second-highest record of US$12.73 billion, which was posted in 2017. In addition, last year’s total can be close to the all-time high of US$14.61 billion, which was recorded in 2013.
The increase in 2017 and 2018 has much to do with global trade protectionism. Last year, the U.S. government resorted more to trade protectionism by, for example, invoking safeguard measures regarding washing machines and solar panels. The trade war between the two superpowers, which are the biggest export destinations for South Korea, added to South Korean manufacturers’ difficulties. Under the circumstances, more and more took measures to increase their production in regions where they can avoid trade protectionism.
“In the past, they were engaged in intermediary trade for smartphones in most cases, but the proportion of home appliances is increasing these days based on an increase in overseas production,” the Bank of Korea explained.
The trend has to do with the South Korean government’s ineffective policy, too. An increase in overseas production results in a decrease in domestic production. Then, a decrease in domestic facility investment and a decrease in domestic employment follow.
In this regard, the South Korean government has implemented policies since 2013 to help overseas South Korean companies return to their home country so that domestic investment and employment can be increased. The policies, however, have been rather ineffective. Until September last year, only 50 companies were selected as returners in accordance with the Act on Assistance to Korean Off-shore Enterprises in Repatriation.