[Editorial] Trade with Japan

Last year, Korea’s exports jumped almost 20 percent to $556.5 billion. The upsurge should have meant a sharp increase in Korea’s trade deficit with Japan, if past trends had been any guide.

But Korea reduced its deficit with Japan, by a large margin. That was no small achievement for a nation that had strived to break the pattern in which it had to import more parts and components from Japan if it wanted to ship more products to the rest of the world.

Yet the Korean government should be cautioned against reading too much into the drop in the deficit. A detailed analysis is needed to determine whether or not it was a passing phenomenon.

Korean exports to Japan increased a whopping 41 percent, the highest since 1988, to $39.7 billion last year. But imports grew at a much lower rate, 6.2 percent, to $68.3 billion. As a result, the trade deficit fell from $36.1 billion in 2010 to $28.6 billion last year. Korea’s trade deficits had previously dropped on two occasions in recent years ― in 1998 when the nation was hit by the Asian financial meltdown and in 2009 when the world was gripped by the Great Recession.

What was behind the change in the trade pattern? For one, it was technological prowess Korean manufacturers had gained. A good example is a company producing auto parts and components. For the first time, it started to ship its suspension systems to Japan, one of the hardest overseas markets to penetrate.

The earthquake and tsunami that hit Japan on March 11 also boosted Korean exports to Japan. For instance, the damage done to refineries helped Korea increase exports of petrochemical products by 130 percent.

Another contributor was the high value of the Japanese currency, which had been gaining strength since 2009. A growing number of Japanese companies were turning to Korea for imports, instead of using Japanese-made products, and building factories in Korea.

With not much information available at the moment, it should be difficult to determine which factors contributed to reducing Korea’s trade deficit and by how much. Still, it is undeniable that the Korean government’s cooperation with business enterprises in fostering technology development and diversifying the sources of imports away from Japan have been paying off. They are called on to step up such efforts if they are to reduce the trade deficit with Japan any further.