Is the Current Trade Balance Okay?

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Is the Current Trade Balance Okay?

The recent trend for the balance of trade has taken a serious turn. The trade surplus in April was $225 million, barely a surplus. Exports only increased by 18.6 percent while imports explosively rose 47.4 percent, with the value the highest ever recorded at $620 million per day. Therefore, the trade surplus was only $773 million between January and April, barely reaching the 10 percent level of last year's trade surplus.

The rapid increase of imports was certainly caused by high oil prices and it is inevitable that there will be an increase of imports needed to raise investment as well as maintain the current economic growth rate. The import of raw materials and capital goods composed 90 percent of total imports in April, and therefore, the composition of imports is not extremely problematic.

However, the recent change is still very important since the trend of a surplus was threatened due to a rapid decrease in trade surplus. Despite the strikes in auto industries, it is still important to note that the rate of increase of imports in April has fallen to the 10 percent mark for the first time this year. The Korea International Trade Association and Korea Development Institute largely downgraded the forecaset for the trade surplus. If the current conditions contitue, the trade surplus may turn to a possible trade deficit next year.

It is definitely not acceptable that the trade surplus would turn to a deficit since extremely low foreign reserves caused the national economic crisis only two and a half years ago. Moreover, a tremendous amount of foreign currency is needed to pay off foreign debts.

However, increasing exports through dumping or forceful measures to control imports can never be allowed. A more fundamental approach is desired.

It is not easy to maintain high economic growth, stable consumer prices, and a trade surplus all at the same time. This is due to the industrial structure of our economy, which mainly relies on components from foreign countries and has a lack of sufficient raw materials. The government must determine whether to maintain the basic tone of the current economic growth despite the aggravation of the trade balance or to alter the existing political priorities. The best solution must be found and executed by the government through the reconfirmation of the current economic conditions, through interest policies, or a management system for trade balance.

Moreover, the chronic situation of a trade decifit with Japan must be corrected. The trade decifit with Japan from the beginning of this year till April 20 amounted to $3.9 billion. If this condition continues, exports become nothing more than a false image. Joint cooperative measures from government and the business sector are needed to enhance the localization of components and material industries which have been badly impacted by the foreign exchange crisis. The conditions in which expensive imported material goods are largely purchased must be changed.

Recently, the government enforces the idea of a 'New economy.' Do we really have the power to maintain the high economic growth and low consumer prices over the long term? Thoroughly integraged and thought out contingency plans are vital to prevent a repeat of the nightmare in which the entire nation fell into bankruptcy and failure as a result of a rosy dream.

by Lee Yong-ki

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