A Lesson from Eurozone Export Slump
The Bank of Korea said in its report on Dec. 15 that the exports from the eurozone have fallen at a rapid pace since last year due to a decrease in exports to China attributable to U.S.-China trade disputes, Brexit-related uncertainties, and geopolitical risks such as the instability in the Turkish financial market.
The region’s high global value chain (GVC) participation index is adversely affecting its exports, too. Its GVC participation index reached 57.3 percent on an offshore basis last year, when those of Japan, China and the United States were 47.7 percent, 45.6 percent and 45.3 percent, respectively.
That year, the zone’s GVC participation index was greatly affected by the trade disputes between the United States and China as the zone is on the downstream side, that is, the production, distribution and sale of finished goods. The Bank of Korea explained that the United States, China and Britain, which are major export destinations for the zone, experienced sluggish exports last year to lead to a decline in intermediate goods exports from the zone to the destinations as well as the ASEAN and so on.
The zone’s sluggish exports were led by automobile exports, which take up the largest portion of the exports from the eurozone. Specifically, the automobile exports’ contribution to the overall exports was negative 0.6 percentage point in the second half of last year and negative 0.1 percentage point for the first eight months of this year.
The Bank of Korea said that the situation is full of suggestions in that the eurozone and South Korea are similar to each other in terms of trade and export structures. “Both South Korea and the eurozone have a high GVC participation index and are on the downstream side in the chain,” it explained, adding, “This means South Korea needs to respond to the ongoing change in the global division of labor by diversifying major export items and beefing up the high value-added upstream part, that is, planning, R&D and raw material and component production.”