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Uncertainties Still Remain Even After U.S.-China Trade Agreement
Korea Could Suffer a Drop in Exports
Uncertainties Still Remain Even After U.S.-China Trade Agreement
  • By Jung Suk-yee
  • January 17, 2020, 13:20
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The United States and China signed their first-phase trade agreement on Jan. 15.

The United States and China signed their first-phase trade agreement on Jan. 15. What lie ahead are variables related to the implementation of the agreement and issues such as the Chinese government’s subsidies for state-run Chinese companies, which triggered their trade disputes. In addition, South Korea’s exports can be adversely affected if China increases its imports from the United States and decreases its imports from other countries ahead of its second-phase negotiations with the United States.

According to experts and the South Korean government, the agreement is likely to reduce external uncertainties surrounding the South Korean economy. The trade disputes between the United States and China weighed down on the South Korean economy for a while.

The Bank of Korea recently said that the disputes resulted in a 0.4 percentage point decline in South Korea’s economic growth rate last year. “The disputes lowered South Korea’s exports by 0.2 percentage point and slowed down its economic activities by the same amount,” it explained.

Likewise, Woori Finance Research Institute said in its recent report that South Korea showed the steepest decline in exports among the world’s top 10 trading countries from January to September last year and the decline amounted to 9.8 percent. “In other words, South Korea was most significantly affected by the trade disputes,” it said, adding, “The recent agreement, however, can be a factor to counter such negative impacts.”
 

In the meantime, some experts point out that South Korea’s exports can decrease after the agreement because China now must increase its U.S. product purchase by US$200 billion as compared with 2017 for two years from now. Specifically, the increment is scheduled to be US$37.9 billion in the service sector, US$77.7 billion when it comes to industrial products, US$32 billion in the case of agricultural products, and US$52.4 billion in the energy sector.

The IMF said in November last year that South Korea’s exports will decrease by US$46 billion if China increases its imports from the United States in the 10 sectors including electronics, machinery and automobiles.


As mentioned above, the Chinese government’s subsidies still remain a controversial issue as in the case of a ban on forced technology transfer to U.S. companies. Woori Finance Research Institute mentioned that global economic uncertainties would become chronic to the point of adversely affecting South Korea’s mid- to long-term economic growth if the second round of negotiations continued without a meaningful outcome.