Building on optimism
The author is president of Lee & Ko Global Commerce Institute and former Minister of Trade.
The World Trade Organization (WTO) has announced the Trade Barometer since 2016 as the composite leading indicator to measure developments in trading goods and services. The Goods Trade Barometer reflects several components such as global export orders, international air freight, container shipping, and the production and sales of automobile, electronic components, agricultural produce and raw materials. An index above 100 indicates a stronger vitality in trade than normal, while an index under 100 shows the opposite.
In July, the WTO released the Goods Trade Barometer at 110.4, up 20 percent from a year earlier to suggest a robust recovery in goods trade. It also found the indices of all components, factored in the composite barometer, exceeded 100 to indicate an expansion in goods trade across the board. The announcement is in line with the WTO projection of 8 percent growth in global goods trade in 2021.
In March, the WTO reported the Services Trade Barometer at 104.7. But the indices on ICT services and international passenger flight services stopped at 93.7 and 81.0, respectively, below the 100 threshold to suggest that global services trade has yet to recover.
Trade data for Korea is in sync with the WTO findings. The trade data released by the government on July 1 showed that our exports and imports increased by 26.1 percent and 24 percent, respectively, in the first half from a year-ago period. Outbound shipments of automobiles and parts, petrochemicals, ships, textile, steel and display have increased sharply after their nosedive in 2020 amid the pandemic.
At the same time, our exports of chips, computers, electric vehicles, bio/health products, cosmetics, and OLED panels have extended their strong growth of a year ago. Korea’s mainstay and new growth exports, which weathered a pandemic setback pretty well, gained stronger momentum through the global recovery and increased demand for green products.
In 2020, Korean exports to key markets all fell except for the United States, the European Union and Vietnam. But this year, exports increased by double digits across the world. In the first half of the year, exports to the EU jumped 44.5 percent, to the U.S. 34.6 percent, to China 23.8 percent, and to Japan 11.4 percent, as well as 38.5 percent to India and 35.8 percent to South and Central America.
However, our services trade remained in the doldrums. Passenger transportation and travel services trade plunged by 70 percent and over 50 percent, respectively, in 2020. Construction services trade also fell sharply. But cargo shipping services trade increased by 11 percent on strong external demand for semiconductors, computers and EVs. Though our services trade has improved this year, it has yet to gain as much as our goods trade.
The WTO warned of downside risks in the second half after a robust recovery in global trade in the first half. If the risks are materialized, the pace of recovery in commodity trade could lose steam, it added.
The WTO based its projection on a gap in the recovery pace by region and continued depression in the services trade. The slow vaccine supplies and vaccination rate — and the fast spread of powerful variants — pose a serious risk to the recovery of the global economy. The intensifying conflict between the United States and China and a spike in international commodity prices also could play negatively on global goods trade.
Korean exports recovered faster than expected thanks to their competitiveness in the digital economy — and against climate changes. The country also has broadened export markets to India, Latin America and Russia. But the outlook in the second half is less reassuring due to the downside risks and geopolitical danger from the U.S.-China conflict.
Korean enterprises must be prepared for a number of uncertainties and proactively respond to future changes in the global economy. The time has come for Korea to reset its strategy on all fronts, including investment, production, sales, procurement, technology and staffing.
Translation by the Korea JoongAng Daily staff.