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[Economic Opinion] The Fundamental Environment of Exports

To everyone’s surprise, export statistics in May showed almost 50 percent growth against the year before. After registering two consecutive years of decline in both 2019 and 2020, signs of strong recovery started to emerge from late 2020 in parallel with the rapid global rolling out of vaccines around the world, and the pace of recovery seems to be accelerating throughout the middle months of 2021.

One of the most encouraging facts underlying this month’s incredible surge is probably that almost all products are showing tremendous increase in exports. Among the top 15 Korean export items, for example, all but one exhibited substantial positive growth rates. Petroleum products, chemical products, automobiles, auto parts and home appliances showed 90 percent or higher growth rates and only the export in shipping stalled in the negative territory. Another good sign is that most of such superb export performance continued on for several months, indicating that the performance in May was not an extraordinary exception. For some areas like bio-health products and home appliances, growth continued for more than 10 months, and most other exports were growing for at least a quarter. On top of this, another encouraging fact is that Korea’s exports grew to all fronts around the world. For example, exports to the US and EU grew 63 percent, respectively, and 64 percent for ASEAN countries. Exports to India and South America rose more than 110 percent.

While all these facts unequivocally tell an episode of monumental export recovery, the real challenge is whether it can carry on beyond this year. No one can shrug off the monstrous haunting grip of the base effect caused by the pandemic last March. In April and May of 2020, exports dropped more than 20 percent due to COVID-19. The pandemic effect was so deep that any normal recovery would have made it look much more dramatic. In fact, despite the 50 percent growth, this month’s exports of USD 50.7 billion is only equivalent to that of 2018. That tells us how profound the impact was from pandemic on the one hand, and how far ahead the Korean industry needs to proceed forward to compensate for the losses, on the other. This is the real task that the government has to take up.

Above anything else, the government has to allow broader breathing room for exporting firms. Corporate regulations unilaterally have to transition from a positive system to a negative one, allowing general freedom of operations except for a specified list of bans. The authorities should feel comfortable with benign neglect of corporate conduct under the premise of good will. The rules have to be simple and transparent to every eye, and future change has to be clearly notified in advance. These fundamental elements of the corporate environment have been so plain but neglected and misplaced for a long time, especially under the frenzy of the pandemic. As the pandemic has weakened the income and purchasing power of the relatively poor, exports are becoming more crucial for economic growth and job creation. In that regard, policies have to give at least equal weight on engendering and promulgating an export-friendly environment as on the basis of distributional justice.

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

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