The ongoing trade war between the United States and China is adversely affecting more and more South Korean industries, which are already suffering from a global economic downturn. South Korea is one of the countries most seriously hit by the trade war in that it relies heavily on exports to the two superpowers. Last year, South Korea’s exports to the United States and China accounted for 26.8 percent and 12.1 percent of its total exports, respectively.
Intermediate goods take up most of Korea's exports to China and the goods are used for China’s processing exports, which means U.S. tariffs on China lead to significant losses on the part of South Korean companies. At present, intermediate goods account for 78.9 percent of South Korea’s total exports to China and 28.7 percent of intermediate goods China imports from South Korea are used for export purposes. In other words, U.S. tariffs on China result in a decline in exports from South Korea as well as a decline in exports from China to the United States.
The Institute for International Trade recently said that 5 percent of South Korea’s exports to China are bound for the United States. For reference, the ratio is 6.5 percent in the case of Taiwan and 3.8 percent and 2 percent when it comes to Japan and Germany, respectively.
Some South Korean industries are already taking a direct hit. For instance, South Korean petrochemical companies, which rely on China for 47.5 percent of their exports, witnessed a year-on-year decline in exports to China of 7.2 percent last year and had to be content with US$21.78 billion. Their exports to China are likely to further decline this year.
South Korean companies’ petroleum product exports have continued to decrease since December 2018. The exports fell 16.2 percent on year in May 2019. An even more serious problem is that the international prices of synthetic resins such as paraxylene, propylene and benzene, which are their major items of export to China, are falling rapidly. The price of paraxylene per ton fell from US$1,046.6 to US$875 from the beginning of this year to the end of last month.
In the global shipbuilding industry, new shipbuilding orders totaled 7.69 million CGT for the first four months of this year, down 36.8 percent from a year earlier. The figure for April is 1.26 million CGT whereas that for March is 2.89 million CGT. This is because the trade war is leading to a decline in maritime transport demand and making shipowners refrain from placing new orders.