[INSIGHT]Exports Need Not Be Our Only Focus

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[INSIGHT]Exports Need Not Be Our Only Focus

"If we are cautious about imports, exports will be cautious by themselves." This is a quite old proverb in economics, even though nobody knows who said it first. It has some relevance to our current situation; as imports shrink, exports will follow suit. However, it still makes sense if we reverse the statement and say that reduced exports force us to cut imports. This saying was especially true when we were so focused on exports that we would do anything to increase them. But things are different now. If we do anything harmful to our imports, we can run into serious problems.

Exports in April stood at $12.3 billion, down 9.3 percent from the same period last year. Imports in the same period were $11.2 billion, 16 percent less than in April 2000. As a result, we had a $1.1 billion trade surplus in April but, despite the surplus, we have not seen such a drop both in imports and exports for over two years. Exports helped us keep from freezing in the cold winds of the IMF era a few years ago; it was exports that staved off bankruptcy when our economy suffered from dollar anemia. I can not help but be concerned with black clouds over our future exports, especially when the national economy in general is not in good shape. I am especially concerned with the prospect that the shrinking foreign trade trend may not be just an April shower, but might continue for some time. Imports this year through April were down 5.6 percent, while exports in the same period are down 0.6 percent.

One of classical ways to increase exports is to sell things more cheaply than others do - price competitiveness. Korean exports in the 1970s came mainly from cheap labor, and surging exports led the nation's economic developement. This is why in some quarters of Koreans there is nostalgia for the days of the "development dictatorship." But Korea is no longer a cheap-wage economy, and that nostalgia is misplaced.

The second way to boost exports is in quality competitiveness that can compensate for higher prices. We are trying our best, and have had some success, but the competition in quality is harder and not to our advantage.

When the real sector is not strong, we can increase our competitiveness by slashing the value of won, but that does not seem to be the panacea it once was. Even when the won's value skidded sharply, to the point that the central bank warned that it might have to intervene to prop up the won, export growth failed to respond.

The world economy, including the economies of our major trading partners, is turning down, and the supply of information technology products exceeds demand. Those are the main reasons for our current export doldrums.

The U.S. economy in the first quarter of this year did better than expected, with a 2 percent growth rate according to preliminary estimates. But many analysts were reluctant to proclaim that the slowdown is over, with some evaluating the U.S. situation as a "growth recession." It also looks like Japan is not going to stop enjoying the benefits of a weak yen for a while. Under these conditions, the effects of a devalued won are leaking away without producing more exports for us. Yet do we simply have to wait for the day when the world economy turns up and solves our export problem? If not, should we look again at the model answers such as increasing quality competitiveness, developing niche markets, and diversifying the range of our export products?

I think not. Although many people would say my ideas are heretical, I believe it is about time that we stop chanting the incantation, "Exports are the only way to survival." I am well aware of the importance of dollars earned by exports, and the employment effect of export industries. But exports are just one factor of aggregate demand in our society, like household consumption, corporate investment, and government expenditures, so there is no reason to give too much attention to what can be called simply "foreign demand." In order to avoid any misunderstanding, I would like to emphasize one more time that I am not ignoring the contribution exports make to our economy.

What I am saying is that our emphasis on exports, based on the fear that without exports we will sink back into third-world poverty, can cause us to turn to extraordinary and sometimes self-defeating policies to stimulate exports. Look at all the bad effects of concentrating solely on stimulating exports. One example is the 5 percent increase in consumer prices this year. We tended to ignore the won's depreciation, expecting that it would increase our exports. But it resulted in more inflation because of higher import prices.

And there are other problems to consider. Whether the export slowdown was cause or effect, imports of capital goods and raw materials in April decreased by over 20 percent each. On the other hand, imports of consumer goods including luxury goods, increased by 10 percent in the same period.

It's about time to change our policies. Let's treat exports as simply one part of our economy, not the driving force by which we rise and fall.


The writer is a columnist of the JoongAng Ilbo.

by Joseph W. Chung

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