Korea’s major industries are beleaguered. Externally, exports of semiconductors, displays, and petrochemicals, which are the backbones of the Korean economy, have been on the decline due to a drop in demand stemming from the U.S.-China trade dispute. Internally, labor unions’ hard lines and excessive regulations are hurting automakers, shipbuilders and steelmakers, taking away some opportunities for a rebound from them. Economic experts say that Korea’s 10 major industries are flashing warning lights at the same time.
The Korean automobile industry is suffering from a slowdown in the growth of the global economy and the spread of a car sharing paradigm. As if to add oil to the fire, a tariff will be imposed on cars which are made in Mexico and exported to the United States beginning on June 10. In China, Korean carmakers’ sales fell about 20 percent in the first quarter as they lagged behind their European and Japanese counterparts in terms of technology and Chinese rivals in terms of prices.
The anti-Huawei campaign is spreading to semiconductors and household appliances. While some IT market experts say that China's information technology (IT) companies will purchase more memories from Samsung Electronics and SK Hynix as supply from Micron Technology has been suspended, the two Korean chipmakers are not happy about it they can be caught in the crossfire of the U.S.-China trade war. Some semiconductor industry experts speculate that this kind of concern prompted Lee Jae-yong, vice chairman of Samsung Electronics, to host an emergency meeting with top officials of the company’s semiconductor division.
In 2018, Korea’s consumer electronics exports totaled US$3.57 billion, down 17.3 percent from the previous year. Korean consumer electronics companies are concerned over the United States hinting at a rise in tariffs on products made in Mexico. Samsung Electronics and LG Electronics are producing TVs and refrigerators for the American market in Mexico. However, some analysts say that the impact will not be significant as their competitors in the U.S. market such as Whirlpool, Sony and TCL are also manufacturing TVs and refrigerators in Mexico.
The Korean shipbuilding industry is troubled with labor union's opposition to the merger between Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME). Korean shipbuilders are behind Chinese shipbuilders in order receipts. They won orders for 45 ships (2.0 million CGTs) during the first four months of 2019 while Chinese competitors landed orders for 140 ships (3.44 million CGTs).
The Korean petrochemicals industry has entered a downward trend as China cut material imports such as paraxylene (PX) from Korea.
"The U.S. and China account for 39 percent of Korea’s exports, In particular, a whopping 79 percent of Korea’s intermediate goods are exported to China," said an official of the Korean business community. "Domestic companies are shifting into emergency mode in the midst of intensifying U.S.-China trade war."
Korean companies’ sense of crisis has reached its peak. A survey of Korea’s six major industries by the Korea Economic Research Institute predicted that their exports would fall an average of 11 percent in the second half of this year. The institute forecast that exports of semiconductors and displays would go down 20 percent and 6.1 percent, respectively. But automobile and shipbuilding exports are forecast to increase by 2.0 percent and 3.0 percent, respectively.
Listed Korean companies’ earnings show slumps of Korea’s flagship industries. According to the CXO Research Center in Korea, 597 companies, or 60 percent of all listed Korean companies, saw their operating profits decline from the previous year or posted operating losses in 2018. Companies that recorded operating loss rose 39 percent to 164.