[Opinion Platform] How Korea Can Survive Protectionism

Exports, a pillar of the Korean economy, are faltering. According to the Ministry of Trade, Industry and Energy, the trade balance has posted a deficit for 14 consecutive months. This is the longest stretch of consecutive trade deficits since the 17-month run 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 slump in the semiconductor industry. Last month, semiconductor exports fell 41% from the same month a year earlier. This was due to the continued decline in prices for major memory products such as DRAM. 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. It is quite shocking that the Korean economy is expected to move backward even though growth outlooks for the United States and China, which account for 40% of Korea’s total exports, have both improved.

Behind the export slowdown lie China’s invisible trade barriers and protectionism. For a recovery, performance related to semiconductors, Korea’s leading export item, and China, its largest export market, must rebound. However, the growing trend of “protectionism” since the U.S.-China trade conflict is hindering a rapid recovery of the global economy. Even now, more than 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 place the well-being of its people first, it is natural for a government to strive to protect its citizens’ interests. However, this applies only when the parties participating in the market are two countries. Markets also include consumers, and consumers 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 result in foreign firms exploiting domestic companies.

Korean companies should seize the current situation as an opportunity to reduce their dependence on China, increase their interest in emerging economies, and pursue diversification of export markets. The U.S.-China trade conflict is highly likely to become a long-term confrontation. Accordingly, if Korea’s high export dependence on China is spread over the medium to long term to new markets such as India and Southeast Asia, export competitiveness could 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 boost export competitiveness by opening up 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 strengthening 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: 2023-06-19

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=6&idx=25802