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If it was the poor export performance that had dragged down the economy for the last few years, it was exactly these exports reviving the Korean economy again in the fall of 2020. The export growth rate surged from –20.3 percent year on year in the second quarter of 2020 to 12.5 percent in the first quarter of 2021, and the longest ever seven consecutive quarters of negative export growth finally ended in the fourth quarter of 2020. The speed of export explosion is remarkable enough to please the policy makers who have been hard pressed by the less than expected economic growth despite years of unprecedented stimulus expenditure packages. Almost all of the forecasting institutions in and out of Korea are busy revising upward the economic prospects, and with no doubt, better export performances lie at the bottom their rosy predictions.
Amid such seemingly unbounded optimism, there are certain concerns that have to be addressed to sustain this export performance. First, even if this phenomenal growth rate of 12.5 percent continues throughout this year, total exports in 2021 will be about USD 30 billion short of the level reached in 2018. This means that the maximum export capacity of 2018 could not be reached in 2021, rendering huge idled capacity in the manufacturing industries. Until the time of full utilization comes, it will be difficult to expect full-fledged investment. Second, exports to certain strategically important areas are showing limited progress. Exports to Japan, for example, declined about 5 percent this year, and about 20 percent since 2018. Exports to India and Vietnam increased only 1.4 percent and 6.3 percent, respectively, this year. In fact, exports to Asian countries except for China increased only 2.7 percent this year. Another area that Korean exports show timid growth is to South American countries with only 4.5 percent growth this year so far. Third, certain commodities, especially petroleum products, which are the fourth largest export item, show slow growth. Despite the total exports growing more than 10 percent this year, petroleum product exports decreased by 17.1 percent so far, on top of two consecutive years of decrease in 2019 and 2020.
All these facts manifest that the current export revival is not enough to return to Korea to its export boom reached in 2018. Active policy support by the authorities are needed to recover the 2018 levels. If the US is trying to reinvigorate the tactics of Build Back Better and Buy America under the Biden administration, the Korean authorities have to come up with a comprehensive plan to allow Korean export firms better cope with new kinds of global challenges. If America urges Korean companies to invest in the US for strategic products like semiconductor chips or electric batteries, which have been the bedrock of Korean exports, then the government and the industry have to get together to make a creative solution to the changing investment regimes. It seems that the relationship between the US and China is getting more entangled, especially in the areas of trade in technology, and Korean exports and investments have to find ingenious ways not to be caught in the middle. A new norm requires international investment to better substitute for growth and job creation through exports. If Korean firms have to invest in the US, it would be better for US companies to invest in Korea on a quid pro quo principle. As the principle of relative advantage must be mutually beneficial in exports, it should equally apply to investment.
By Professor Se Don Shin
Dean, Sookmyung Women’s University
The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA