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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
seshin@sm.ac.kr
The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA