[Open Forum] How Korea Can Survive Amid Protectionism

Exports, the backbone of our economy, are faltering. According to the Ministry of Trade, Industry and Energy, the trade balance has posted deficits for 14 consecutive months. This is the longest streak of continuous trade deficits since the 17 straight months of trade deficits from January 1995 to May 1997. Experts are unanimously emphasizing the need to ease corporate regulations.

The main cause of the decline in exports is the downturn in the semiconductor industry. Last month, semiconductor exports fell 41% from the same month a year earlier. This is because prices for major memory products such as DRAM have continued to decline. Among the 15 major export items, only automobiles, ships, and general machinery recorded year-on-year export growth.

Meanwhile, growth forecasts for both China and the United States have been revised upward. Even though growth projections for the U.S. and China, which together account for 40% of Korea’s total exports, have both risen, it is truly shocking that our economy is still expected to move backward.

Behind the export slump lie China’s invisible trade barriers and protectionism. For recovery, performance related to semiconductors, Korea’s leading export item, and China, its largest export market, must rebound. However, the spread of protectionism following the U.S.-China trade conflict is hindering a rapid recovery in the global economy. Even now, 20 years after joining the World Trade Organization (WTO), China continues to pursue non-market, state-led economic policies. It is protecting its domestic market by providing various subsidies that favor its own companies and even infringing on intellectual property rights.

The Chinese government must realize that free trade is fair trade. Of course, from the perspective that a state must prioritize the well-being of its own people, it is natural for a government to strive to protect their interests. However, this applies only when the two parties participating in the market are two states. There are consumers in the market, and they must be guaranteed the opportunity to choose what they want according to their preferences. In economics, this is called “consumer welfare.” In reality, opening a market does not lead foreign companies to exploit domestic firms.

Korean companies should take the current situation as an opportunity to reduce their dependence on China, increase their focus on emerging economies, and diversify export markets. The U.S.-China trade conflict is likely to become a prolonged confrontation. Accordingly, if Korea’s high export dependence on China is gradually dispersed over the medium to long term toward new markets such as India and Southeast Asia, export competitiveness can be strengthened. Already in the first quarter of this year, while Korea’s trade balance with China turned into a deficit, positive signs have emerged, such as Vietnam, an emerging economy, becoming Korea’s largest source of trade surplus.

Even in crisis, there is opportunity. Korea should enhance its export competitiveness by pioneering emerging markets through a free trade policy. Fortunately, the government has shown a willingness to promote free trade. The government should devote greater policy efforts to market diversification and improving the competitiveness of exporting firms.

Gyuri Park, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 보호무역주의 속 한국의 생존법

Author: Gyuri Park

Date: 2023-05-19

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=10&idx=25679