In the face of a looming trade war
The author is an economic news editor of the JoongAng Ilbo.
It’s tough to be Korea Inc. these days. The companies are on their own in weathering the brewing trade storm.
Korea’s top business leaders were rounded up by U.S. President Donald Trump, who made a brief trip to Korea last month. They arrived at the hotel where he was staying — two hours before the scheduled meeting. They could hardly resist the call from the U.S. leader. LG Group Vice Chairman Kwon Young-soo went to the hotel — instead of LG Corporation CEO Koo Kwang-mo — as he could better explain why the business group’s LG U+ wireless unit cannot cut contact with China’s Huawei Technologies.
Just a few days earlier, the top four business group chairs, including Samsung Electronics Vice Chairman Lee Jae-yong, gathered for a moment with Saudi Arabia’s Crown Prince Mohammed bin Salman on his visit to Korea. They had to settle for a short meeting late at night over tea, with the big-spending de facto leader from the Middle East country, because their dining schedule was canceled at the last minute for a state banquet hosted by President Moon Jae-in at the Blue House. Still, they could not complain and miss out on a sit-down with the Saudi prince.
In the following week, Japan announced trade restrictions on three key materials Korea needs to produce semiconductors and displays. Japan — a neighbor that proved to be ruthless and precipitated Korea’s liquidity crisis by withdrawing funds en masse during the Asian financial crisis in the late 1990s — took aim at the core of Korean industry in economic retaliation for the Korean Supreme Court’s rulings ordering compensation by Japanese companies for Koreans forced to work during World War II. Lee of Samsung and Lotte Group Chairman Shin Dong-bin flew to Japan immediately to speak with their in the country to minimize the damage.
The government has been no help. It must build up its strength, flair and brass. In the government’s first reaction to the export restrictions by Japan, Trade and Industry Minister Sung Yun-mo vowed to take the issue to the World Trade Organization (WTO). Two days later, Seoul asked for bilateral talks with Tokyo. If it had dealt with the issue calmer, by exploring Japan’s intentions through bilateral dialogue before publicly vowing a WTO option, talks could have panned out better.
The government has been hardly reliable in economic management. It was overly optimistic and deluded about the economy. Then it sharply downgraded Korea’s growth outlook for the year to 2.4 to 2.5 percent from 2.7 percent six months ago. Hong Nam-ki, deputy prime minister for the economy and finance minister, said the setback from Japan won’t likely be as damaging to the extent of further driving down the growth estimate. The government has exposed a lack of accurateness in economic forecasting.
The government does not seem to be as careful in studying the harm of its policies — the steep increases in the minimum wage and the universal 52-hour workweek rule. Goldman Sachs predicted Korea’s growth next year could be pared by 0.3 percentage points when the 52-hour workweek regulation is imposed without exceptions in every workplace in Korea. It projected that Korean companies cannot afford an increase in labor cost amid protracted sluggishness in domestic demand and uncertainties on the trade front.
Since its study is wanting, the government cannot make the right projection and response. Although Korea’s gross domestic product in the first quarter fell 0.4 percent, the Blue House and the economic ministries had been projecting a 0.3 percent gain. It is why investment bank projections that the economy may underperform by 2 percentage points sounds more plausible than the government’s forecast of 2.4 percent to 2.5 percent.
A senior official from the Japanese central bank has reportedly researched the potential impact on the Korean market if Japanese capital pulled out earlier this year. Tokyo has been studying various retaliatory actions. Yet Korea had stayed clueless and casual. Its people and businesses are insecure not just because of Japan’s offensives but because of the lack of reliability on the part of their government.
An executive from an IT company grappling with the export restrictions by Japan said that Tokyo won’t likely pull the trigger on a trade war but will stay intimidating with the gun aiming at Korea. “The problem is whether we can hold up for long.”
The government must do its utmost to defend domestic companies and industry from now.
JoongAng Ilbo, July 9, Page 27