Becoming One of the World’s Major Economic and Trading Powers

On December 12, a ceremony was held to mark South Korea’s achievement of surpassing one trillion dollars in trade volume, making it the world’s ninth largest trader. In his speech at the ceremony, South Korean President Lee Myung-bak said, “On December 5th, South Korea’s trade volume exceeded the one trillion US dollar mark for the first time. This means that we have become a global trading powerhouse, keeping abreast of advanced countries in terms of trade volume.”

Rattled by repeated economic disasters, such as the 1970’s oil crisis, the 1998 financial crisis, and the 2008 global financial crisis, Korea has made this honorable accomplishment in fifty years after adopting export oriented development strategies in the 1960’s. In this respect, the landmark achievement is meaningful. However, many experts are claiming South Korea has plenty of challenges ahead. They all agree that the nation should take the sharp increase in export volume as an opportunity to overcome its structural problems arising from international trade.

Rapid Economic Growth and Risk Management

South Korea entered the world’s top 100 ranking in terms of exports in 1963, when the government-led policy to foster the export industry began to bear fruit. The nation has continued rapid economic growth surpassing 100 million dollars in export volume in 1964 and posting 10 billion dollars in 1977. In the 1980’s, the South Korean government began Uruguay Round Trade negotiations and implemented open trade policies. As a result, the country posted an annual growth rate of 7%, reaching 100 billion dollars in trade in 1988.

The term risk management represents trade history from the 1990’s until now. The 1998 financial crisis would have undermined the foundation of the nation’s economic system if tackled improperly. However, South Korea weathered the financial crisis successfully by strengthening its industrial system, such as restructuring conglomerates and the banking system, implementing radical reforms, and nurturing the IT industry and venture capital companies. South Korea also showed excellent risk management skills, turning the economic crisis into an opportunity to become a global IT powerhouse. More recently, South Korea has turned the global financial crisis in 2008 into preemptive response strategies for the new global trading order, such as plans to develop emerging markets and expand the Free Trade Agreement (FTA). As a result, the nation has increased its exports more than 4% annually for three years in the wake of a global financial crisis that caused overall world trade volume to decline.

Han Jin-hyun, director general for trade at the Ministry of Knowledge Economy, said that these results were attributed to the personality traits of the Korean population, such as the attitude of responding actively and making efforts to evolve. “Korean people like to exert their potential power in the face of difficult times. With the help of this trait, we were able to turn a crisis into an opportunity. The efforts to create opportunities from crisis enabled us to reform and evolve our industry,” added Han.

From Followers to Frontiers

For South Korea, trade is the driving force behind, and root of, its landmark economic growth, often referred to as the “Miracle of the Han River.” But what does one trillion dollars in trade volume mean to us? It has two meanings. First, South Korea has joined the One-Trillion-Dollar Trade Club, an unofficial classification of the world’s major economies, thus making it an economic and trade powerhouse in the international community.

What this means can be more clearly understood by looking closely at what countries have reached more than one trillion dollars in trade volume. These countries include the US (1992), Germany (1998), Japan (2004), China (2004), and France (2006). The gross domestic product (GDP) per capita of all the advanced countries, except China, is more than thirty thousands dollars. Furthermore, all advanced countries except The Netherlands are among the top 10 countries in terms of GDP. In other words, one trillion dollars in trade volume has only been achieved by the world’s leading trading nations.

Considering this, President Lee’s celebration regarding the achievement was natural. Lee said, “South Korea has finally become a global trading powerhouse, one that contributes to the world’s economic development. Semiconductors, automobiles, state-of-the-art, high-tech products manufactured in South Korea can be found across the world.” This landmark achievement is a result of the hard work of our people and clearly shows that effort bears fruit. In addition, given that the advanced countries mentioned above, again except China, had possessed colonies until the Second World War, South Korea’s achievement is even more significant because its exports have increased ten thousand-fold and its trade volume two thousand-fold in just over fifty years, and despite colonial oppression and the Korean War.

Preparation for Era of Two Trillion Dollars in Trade Volume

Many experts impose significant meaning on the achievement in trade volume, but also warn that South Korea should brace for the Two-Trillion-Dollar Trade Era. They point out that there are plenty of challenges ahead in dealing with a new chapter of the Two-Trillion-Dollar Trade Era.

Such challenges can be divided into internal and external ones. While South Korea’s external trade environment continues to change dramatically, China remains the biggest challenge. With the ongoing global economic uncertainty, China’s weak exports are highly likely to affect South Korea’ exports. This is attributed to the nation’s high dependence on the trade with China and the processing trade in which Korean companies re-export products finished in China to third world countries. South Korea’s exports to China in 2010 accounted for 25.1 percent of its total overseas shipments, and is larger than exports to the US (10.7%) and Europe (11.5%) combined. This means that South Korea’s overseas trade is dangerously lopsided. This danger is already being witnessed in the change of exports to China. From January to November 2011, South Korea’s exports to China are 16.5 percent of the nation’s total exports, sharply down from 31.3 percent in the same period last year.

One government official explained about export strategies to China, saying, “South Korea will aggressively employ economic strategies aimed at attacking China’s domestic market, and will expand exports of products such as high-end clothing in order to attract Chinese consumers. South Korea will maintain its competitive edge against the likes of the US and Japan in China’s domestic market, and will continue with efforts to expand exports there through specialized strategies aimed at attracting Chinese consumers in cities and provinces.”

South Korea is also facing numerous internal challenges. First and foremost, South Korea should provide an environment in which small and medium-sized companies and average citizens can prosper. Han Jin-hyun, director general for trade at the Ministry of Knowledge Economy, said, “South Korea should build a society in which small and medium-sized companies and average citizens can benefit from the nation’s economic growth by pursuing co-prosperity between large and small companies and offering high quality jobs to young people. This is the biggest challenge facing South Korea after surpassing the one-trillion-dollar mark.” Han added that there are other major challenges, such as the need to find a new growth engine that can function as a cash cow like the shipbuilding and automotive industries, the need to expand export markets to emerging countries such as Latin America, the Middle East, and Africa, and the need come up with measures to support service businesses currently lagging behind their rivals.