Concerns rise over declining exports

The latest customs data showed South Korea’s exports tumbled by 18.2 percent from a year earlier in the first 10 days of October, making it almost certain that this month will post another sharp decline in outbound shipments.

The country’s exports had decreased for a record 19th consecutive month through July before slightly rebounding in August. But its outbound shipments fell by 5.9 percent on-year to $40.9 billion last month, while imports edged down 1.7 percent to $34 billion.

Accordingly, the country’s trade surplus declined by 22.4 percent from a year earlier to $6.9 billion, according to the data from the Korea Customs Service.

What is deepening concerns among trade officials here is that Korea has seen shipments to all major trading partners sliding across a whole range of key export items.

Exports to China, the largest market for Korean manufacturing exporters, dropped by more than 18 percent from a year earlier in the first 10 days of October following 15 straight months of decline through September.

Shipments of goods to the US and EU decreased by 23 percent and 27 percent, respectively, over the same period.

Exports to Japan, which recorded an increase in August and September, tumbled by 21.7 percent in the first 10 days of this month.

By items, outbound shipments decreased by 51.9 percent for cars, 31.2 percent for mobile phones, 30.8 percent for petrochemicals products, 20.3 percent for auto parts and 5.9 percent for semiconductors during the cited period.

The steep fall in exports of cars and mobile phones was attributable mainly to partial strikes at Hyundai Motor and measures by Samsung Electronics to recall and then stop producing Galaxy Note 7 smartphones prone to catch fire. Economists worry dark clouds may continue to hang over the two companies, whose sales account for about 20 percent of Korea’s gross domestic product, as they become less innovative and productive than their global competitors.

The rise of trade protectionism across the world is seen as a major factor behind Korea’s slumping exports.

In the first nine months of this year, the number of protectionist measures taken against Korean products abroad rose by 30 percent from the year before to 34.

Recently, US authorities charged antidumping and countervailing duties against hot-rolled steel plates imported from Korea after taking similar moves against other products produced by Korean steelmakers.

The protectionist trend is expected to spread further as the expansion of world trade is slowing.

The International Monetary Fund cut the 2016 forecast of global trade growth to 1.7 percent from 2.8 percent and lowered the outlook for next year to 3.1 percent from 3.6 percent.

What poses more substantial threats to Korean exporters is decreasing demand from China and intensifying challenges from Chinese competitors in global markets.

With its economy becoming more sophisticated, China has undertaken multiple stages of production in-country rather than remaining as a final assembly point for components manufactured abroad. As a result, Korean companies, particularly in electronics and petrochemicals sectors, have lost the Chinese market and vied with Chinese rivals for global market shares.

This increasingly unfavorable environment surrounding Korean exporters leads many economists to raise questions about views expressed by central bank and government policymakers that Korea’s export conditions will improve next year.

In a report released last week, the Bank of Korea said the country’s exports are expected to receive a much-needed boost in 2017 from more imports by its major trading partners.

The central bank projected exports would make a 0.9 percentage point contribution to next year’s growth, compared with 0.5 percentage point for this year.

Finance Minister Yoo Il-ho also said recently that improved global trade conditions, including oil price hikes, would enable the Korean economy to attain the government-set growth target of 2.8 percent for 2016 and 3 percent for 2017.

“Given current conditions, the possibility still remains low that (Korea’s) exports will increase next year,” said Kim Jung-sik, an economics professor at Yonsei University in Seoul, noting a possible US rate hike would increase uncertainties over the world economy.

If exports continue to slump with domestic consumption expected to lose momentum in the coming months or years, it will be more difficult to pull the Korean economy out of the low-growth rut, economists say.

They note Korea should couple efforts to diversify export items and markets with a long-term endeavor to renovate its manufacturing industries.

Support also needs to be strengthened to expand exports in the services sector.

Emphasizing the need to prepare for the rise of protectionism, Yoo said last week the government would take firm action against unfair trade measures imposed on Korean products. Seoul officials have pledged to try to ease the protectionist tide through multilateral mechanisms such as the processes of the World Trade Organization and the Group of 20 forums.

While agreeing such efforts are needed, economists indicate Korea also needs to pay more attention to managing its trade surplus, which accounts for about 8 percent of GDP, at a more moderate level acceptable to the US and other trading partners.

By Kim Kyung-ho (khkim@heraldcorp.com)