[Editorial] Beyond $1tr in trade

External trade since the outset of this year recorded $1 trillion on a customs-clearance basis around 3:30 p.m. on Monday ― no small achievement for Korea, which was the first former colony to reach the milestone. Moreover, no more than eight countries had broken through the $1 trillion mark ― the United States, Germany, Japan, China, France, Britain, the Netherlands and Italy.

It is expanding trade, or more accurately growth in exports, that has made it possible for Korea to write a rags-to-riches success story. Its per capita income has risen from $87 to $20,759 since 1962, and its trade from $478 million to more than $1 trillion. The nation definitely deserves to pat itself on the back and boast of its tremendous achievements.

An impatient Korea is already talking about $2 trillion in yearly trade. But it should be reminded that it will not be easy to remain on the list of countries with $1 trillion or more in annual trade, let alone doubling trade volume. Last year, two of the eight trade powerhouses failed to put themselves on the honors list again.

It is a matter of course that if annual trade is to double, the nation will have to double its exports. Should exports fall short of the target, the nation would not be able to finance imports amounting to $1 trillion or more. But the problem is that the nation is confronted with daunting obstacles to growth in exports.

First among them is that Korean exports are dominated by large corporations building ships, making steel products, assembling automobiles, producing petrochemicals and making such high-tech products as semiconductors, liquid crystal displays and mobile phones. Their unreasonably high share of the total, more than 70 percent, will undoubtedly prove to be a soft spot in the nation’s strategy for doubling exports. Such an export structure is vulnerable to external shocks.

As a remedy, it is necessary to foster small but powerful companies manufacturing products of high value ― materials and parts and components as well as finished products. The domestic production of sophisticated intermediary goods, which will substitute imports, will improve the nation’s terms of trade, in addition to serving as a buffer for an external shock.

Another problem is the high concentration of Korean exports on a small number of markets, with more than half the shipments bound for China, the United States, Japan, Hong Kong and Singapore last year. True, Korea has diversified its markets in the last several years to a considerable extent. But it still needs to explore new markets.

Korea, as a nation poor in natural resources, will have to continue to rely on exports to generate growth. Yet renewed vitality in exports will not improve the quality of life for ordinary Koreans as much as it has in the past, as is evidenced by a weakening in the trickle-down effect. According to one estimate, an additional 1,000 won in exports, which meant 2,027 won in domestic production in 1995, translated into 1,937 won in output in 2009, with more imported intermediary goods involved in the manufacture of export items.

Nor do exports create as many jobs as they have in the past. As one estimate by a private economic research institute shows, the number of new jobs created by each additional 1 billion won in exports plummeted from 24.4 in 1995 to 9.8 in 2009. On the other hand, an additional 1 billion won in consumption meant 18.6 new jobs, an indication that the government needs to encourage domestic demand as well as to promote exports.

Moreover, the nation’s degree of dependence on external trade, as measured by the ratio of trade to gross domestic product, was too high ― 110.9 percent, compared with 31.3 percent for the United States, 31.8 percent for Japan and 95.3 percent for Germany. This comparison is another reminder that Korea needs to strike a new balance between the roles of domestic demand and exports in promoting growth, which is all the more important, given the prediction that the economic crisis in the eurozone will continue to dampen global trade next year.