Korea joins $1 trillion trade club
Hyundai Motor’s vehicles wait in line to be shipped overseas from its manufacturing facility in Ulsan in August, this year. Korea’s growing auto sales in the overseas market have largely contributed to Korea setting its new annual trade record of 1 trillion dollar yesterday. [JoongAng Ilbo]
According to the Ministry of Knowledge Economy, the country’s annual trade volume surpassed the $1 trillion mark yesterday at 3:30 p.m., reaching over $1 trillion in annual trade volume for the first time. Exports reached $515.3 billion while imports hit $485.5 billion.
The milestone was widely expected when the country’s trade volume neared the $1 trillion mark for the first in 11 months of this year at $987.6 billion, with exports hitting a new annual high.
“It surely comes as a proud and historic moment for Korea to reach $1 trillion in trade,” said Knowledge Economy Minister Hong Suk-woo, “Now, it’s time for Korea to reach a $2 trillion trade target by exploring new growth engines and setting a new trade vision and paradigm.”
The announcement yesterday comes despite the slowdown in the overall global economy that has been triggered by the European debt crisis and the slowed economic recovery in developed nations. Though the Korean government had set its $1 trillion trade target last year for this year, there had been concerns throughout 2011 as to the possibility of Korea being able to reach its trade volume goal that has so far been only fulfilled by eight other countries, some with higher per capita gross domestic product, including the U.S., Germany, China, Japan, France, the U.K., the Netherlands and Italy.
While the country celebrates the significant moment, challenges, however, remain for Korea to brainstorm innovative ways to maintain its economic status at a time when the volume of overall economic trade activities is on a declining trend.
The ministry, nevertheless, set a new trade goal yesterday of doubling its trade volume in the years to come.
Where Korea stands
When looking out the window of one of the high-rise office buildings in central Seoul, the city is vibrant, modern and busy. The bustling capital is where Korea builds its economy and performs its trade deals. Such a scene could not have been imagined several decades back, even some 20 years ago, when the country’s annual volume of trade only reached $100 billion. Few imagined Korea’s trade would surpass $1 trillion.
So far, only nine countries including Korea have seen their trade volume exceed the $1 trillion mark. The U.S. was the first country to reach the trade milestone in 1992, followed by Germany in 1998, China and Japan in 2004, France and the United Kingdom in 2006, and the Netherlands and Italy in 2007. Currently, only five countries maintain such trade status - the U.S., Germany, China, Japan, and France.
What is significant about Korea joining the club is that it took the country a shorter period of time to reach $1 trillion from each $500 billion and $100 billion compared to other countries. According to data from the World Trade Organization, it took an average of 26.4 years for the eight other countries to reach $500 billion from $100 billion and 8.4 years to reach $1 trillion from $500 billion. For Korea, however, it took 23 years and six years, respectively.
“The growth of Korean trade, in particular, exports, is what contributed greatly to the development of our economy,” said Lee Woon-ho, director of the Ministry of Knowledge Economy’s trade policy division. The rapid expansion of Korean trade, reflecting the country’s export-oriented growth strategy since 1960, intensified the Korean economy’s dependence on trade.
The ratio of exports to gross domestic product, for example, jumped to 49.3 percent last year from 12.8 percent in 1980, according to the Bank of Korea.
“Trade growth also created massive jobs in the manufacturing industry and helped maintain production supply,” Lee said.
Ha Byung-ki, vice president of the Korea Institute for Industrial Economics & Trade (KIET), also said that “Korea’s major industries have gained their market shares led by the government’s trade expansion policies.”
In particular, some products such as semiconductors (59 percent), mobile phones (29.2 percent), liquid crystal displays (51.3 percent), and digital televisions (36 percent) gained top market shares last year in the global arena.
“Performance of exports strengthened people’s confidence and pride in the Korean economy and in particular, trade played a key role in supporting economic resilience during two economic crises, namely the 1997 financial crisis and the 2008 global crisis,” Ha added.
From textile to autos
In the 1970s and 1980s, exports were largely led by textile and steel plates as well as ships. In modern days - throughout the 1990s and 2000s - exports were boosted by high-technology and heavy-industry products such as semiconductors, computers, automobiles, general machinery and mobile devices. The expansion in volume has contributed to spreading the brand names of local companies overseas such as Samsung Electronics, which has been aggressive in exporting its smartphones and flat screen televisions, as well as Hyundai Motor, which has become a prominent automaker worldwide.
According to the Korea International Trade Association, last year, Korea’s No. 1 export item was semiconductors, accounting for 8.1 percent of the total volume, followed by ships with 8 percent, automobiles with 6.8 percent, petrochemical with 6.5 percent, liquid crystal devices with 6.4 percent and telecommunication devices with 5.5 percent. Items for other export countries with more than $1 trillion trade varied.
For the U.S., for example, its largest shipped item was petrochemical products, accounting for 4.1 percent of its total exports, followed by automobiles with 3.1 percent, semiconductors with 3 percent, auto components with 2.6 percent and computers with 1.9 percent. In the case of China, the percentage of computer exports accounted for 8.8 percent of the total volume, followed by telecommunication devices with 6.7 percent, ships with 2.2 percent, discrete semiconductor devices with 2 percent and electronics with 2 percent. For Japan, vehicles were on the top of its list of exports as well as semiconductors, auto parts and ships. For the European Union it was vehicles, medical products and petrochemical products.
As for the latest data for Korea’s shipments, in November alone, Korea’s exports gained 13.8 percent on-year to $47 billion while imports grew 11.3 percent to $43.1 billion. The country’s trade surplus also rose from a year earlier last month to $3.9 billion, up from $3.61 billion. November’s export growth was largely led by increases in shipments of petroleum products, such as gasoline and diesel, which jumped 46.2 percent from the same period last year. Exports of automobiles and steel products also surged 30.4 percent and 21.7 percent on-year, respectively.
“Korea’s competitiveness depends mainly upon price advantage in industries related to fabrication and heavy equipment,” Ha from KIET said.
Upcoming challenges
Yesterday, Knowledge Economy Minister Hong Suk-woo stated a vision of Korea doubling its trade volume in the future. There are concerns, however, that the prolonging debt crises in the European Union and the slower than expected economic recovery in the U.S. may affect Korea’s overall trade in the following year.
In fact, recent data showed that Korea’s trade dependence on the U.S., its third largest trading partner after China and Japan, hit a record low this year as global economic risks grew and the lingering euro zone debt crisis slashed U.S. consumers’ demand for Korean goods.
According to data compiled by the Korea Customs Service, the value of Korea’s exports and imports to the U.S. was $83.5 billion in the January-October period, accounting for 9.3 percent of the country’s total customs-cleared trade. The volume was the lowest since the first 10 months of 1990 when the customs agency began compiling the data.
Diversifying its export targets has been one of Korea’s tasks as of late as developed nations like the U.S. and European Union countries are facing economic downturns.
According to the Knowledge Economy Ministry, Korea has diversified its trade from focusing excessively on traditional areas like the U.S. and Europe, to China and Southeast Asian countries.
In 1980, Korea’s top three largest trading partners were the U.S., accounting for 23.9 percent of total trade volume, Japan with 22.4 percent and Saudi Arabia with 10.6 percent.
In 1990, the top three countries were still the U.S., Japan and Germany, accounting for more than 50 percent of Korea’s trade. It was in 2000 that China emerged as one of Korea’s top three trading partners after the U.S. and Japan, before becoming the largest trader in 2010 with 21.1 percent volume.
Korea’s top three export countries were also China, the U.S. and Japan, respectively, based on last year’s data. In previous decades, Japan remained as the second-largest, after the U.S.
In November, exports to developing countries continued to surge with shipments to China growing 9.2 percent from a year earlier while exports to Middle Eastern countries rose 23.3 percent with those to the 10 member nations of the Association of Southeast Asian Nations also surging 16.5 percent on-year, according to the Ministry of Knowledge Economy.
The changes in the ranking also reflect local companies’ aggressive efforts to diversify its businesses more toward emerging countries.
“The economies of emerging nations like China and India are growing rapidly,” said an official from a local company. “Next year’s business plan will focus much on expanding ties with developing nations where business opportunities remain yet untouched.”
Local automakers, retailers and electronics firms have been eyeing China as well as Southeast Asian countries for further growth in their businesses. Businesses have been urging the government to speed up the progress in signing a free trade deal with China, now that Korea’s National Assembly have passed the Korea-U.S. FTA bill.
Korean companies have been struggling to enter the Chinese market as the Chinese government imposes strict regulations on foreign companies and there are also high barriers in terms of tariffs.
“Trade pacts are part of Korea’s competitiveness strategy - in conjunction with broader domestic economic reforms - to keep pace with China and other major trading nations,” said Jeffrey Schott, senior fellow at the Peterson Institute for International Economics. He spoke at a conference hosted by the Korea International Trade Association in September.
Having more FTA partners would help Korea, which is highly vulnerable to external risks, remain more stable in times of economic crisis and to maintain its economic growth. Recently, the Organization for Economic Cooperation and Development lowered Korea’s growth forecast to 3.7 percent for this year and 3.8 percent for the following year from the previous 4.6 percent and 4.5 percent, which can also affect Korea’s trade volume in the following year.
The geopolitical risk involving North Korea is another factor that could trigger Korea’s trade to drop.
To prevent Korea from facing a shrinking trade volume, the Korea Trade-Investment Promotion Agency said in a recent report that “creating new areas of comparative advantage in high-tech industries” is crucial for the country to maintain its robust exports and imports as well as “balancing growth between manufacturing exports and services exports.” Until now, Korea’s exports have been highly manufacturing-based.
“Paying more attention to India, Latin America, the Middle East, and Africa would also help,” said Bark Tae-ho, professor of international commerce at Seoul National University’s Graduate School of International Studies.
As for now, the Korean government remains certain that its trade will grow also next year.
“It is hard to predict how much it will increase because of the continued impact from the global financial crisis,” Lee from the Ministry of Knowledge Economy’s trade policy division said. “But we certainly expect them to grow from the same period last year.”
In the meantime, joining the $1 trillion club means more responsibility.
“With Korea’s status as a trillion dollar trading country, it has a huge stake in strengthening an open global trading system,” said Jeffrey Shafer, consultant and former vice chairman of Citi’s Global Banking and senior Asia Pacific officer.
He noted three things for Korea to focus on: conveying the lessons of Korea’s history to others, setting a good example in its own policies and leading discussions among countries.
By Lee Eun-joo [angie@joongang.co.kr]
with the Korea JoongAng Daily
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