Caught in the crossfire
The author is a deputy industrial 2 team editor of the JoongAng Ilbo.
The U.S.-China trade dispute that drove the global markets into chaos has been smoothed over ambiguously. It is unclear whether the ban on Huawei is lifted or maintained. The answer can only be found in the heads of Donald Trump and Xi Jinping. As their priorities are their political positions at home, economy and companies are low on their lists. As a result, Korean companies are just a way to demonstrate their influence.
This time, Korea and Japan are likely to have a dispute. Abe’s offensive cornered Korea’s semiconductors, smartphones and OLED TVs. While the supply of Japanese materials needed to make the products is not completely severed, it is clear that procurement won’t be easy. Korean companies are used by Abe to pressure President Moon Jae-in.
At the center of trade disputes between the United States and China and between Japan and Korea, Korean companies will have difficulty setting direction. There is no clear solution. A businessman said he was troubled but could only sit and watch. If the U.S.-China trade dispute is a rivalry for power, the Korea-Japan trade dispute is the result of diplomatic discord. Businessmen complain that there is no room for companies to maneuver until governments reach a solution.
But the companies must endure the burden of the U.S.-China and Korea-Japan disputes. Financial information company FN Guide predicts that the operating profits of 135 companies in the second quarter, including Samsung Electronics and SK Hynix, will fall 40 percent compared to the same period last year. Exports have been decreasing for seven consecutive months. The problem is not just reduced revenue or operating profit.
Korea lives on exports. If exports decrease, domestic consumption will go down, and vicious cycle will begin to make life more challenging. More than 40 percent of the GDP comes from exports. Korea’s situation is different from the United States, where exports are only 9 percent of GDP, or Japan at 15 percent, or China at 22 percent. They can maintain domestic demand if their exports decrease. Korea cannot so easily shift.
These days, companies are dependent on a global value chain that cannot be broken at once. For memory chips, Korea is the manufacturing leader meeting 70 percent of global demand. But equipment and materials are imported from Japan and Korea’s semiconductors are exported to China, which makes final products to sell to the United States.
JoongAng Ilbo, July 3, Page 28