Korean economy facing increasing risks from outside

Korean economy facing increasing risks from outside

The South Korean economy, internally constrained by sluggish consumption and investment, is also surrounded by growing external risks. The export-driven economy, in particular, is significantly dependent on its two biggest trading partners, the US and China.

While the US is expected to have a new president after Tuesday’s election, in which both presidential candidates are strong protectionists, China is cautiously watching Seoul’s diplomatic and political moves and taking what appear to be retaliatory measures against Korean businesses.

The most immediate point of uncertainty for the Korean economy, especially on trade, is the US presidential election.

US presidential candidates Hilary Clinton(left) and Donald Trump

While both Republican candidate Donald J. Trump and Democratic candidate Hillary Clinton pledge greater infrastructure investment that could create opportunities for Korean businesses, they also advocate protectionism, signaling a change, if not a complete overhaul, of trade policies.

“Overall, the protectionist tone will be enhanced in (US) trade policies either way,” said Park Seon-hu, a researcher at Industrial Bank of Korea’s economic research institute. “If Trump wins the election, he is very likely to demand revisions to the Korea-US Free Trade Agreement due to the constant deficits from US trade with Korea.”

Trump has argued for a withdrawal from the Trans-Pacific Partnership, renegotiation of the North America Free Trade Agreement, known as NAFTA, and the imposition of high taxes on imports from Mexico and China.

Clinton, who supported free trade during her years as secretary of state, has shown conditional opposition to the Trans-Pacific Partnership free trade deal after some flip-flops.

Clinton is not forecast to take a sudden U-turn in current policies, but is expected to impose regulations on imports of some oversupplied goods such as steel, metals and chemicals, according to the researcher.

Clinton has also been calling for strong punishments on unfair trade practices conducted by other countries in a bid to protect American business’ interests.

“Anti-dumping lawsuits filed by the US would continue to increase, while pressure on the foreign exchange policies of China, Japan and Korea are expected to mount,” said an official at Korea Trade-Investment Promotion Agency’s office in Washington via email.

If the new US government moves to revise the FTAs and impose higher tariffs on its long-time trade partners, China may take retaliatory moves against the US, the KOTRA official said.

“In that case, there could be a trade war between the US and China,” he said. “Whoever wins, there will be more negative factors than positive ones for the Korean economy. The government will need to prepare measures to help minimize the damage to Korean businesses.”

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Source: Korea Customs Service

The US is the second-largest single market for Korean exporters. Since the Korea-US FTA took effect in 2012, the county’s trade surplus with the US constantly grew from $15.2 billion in 2012 to $25.8 billion in 2015, according to data by Korea Customs Service.

Source: http://www.koreaherald.com/view.php?ud=20161106000184

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