The U.S. and China are locked in a major trade dispute by slapping 25-percent punitive tariffs on each other's exports. The spat between the world's two biggest economies is already hurting the EU and Japan and could escalate into a global trade war.
Korea's economy, already been hit hard by declining production, investments, private consumption and hiring, is expected to suffer another heavy blow. The country's export-dependent economy could be among the hardest hit.
The U.S. government said Friday that it decided to impose tariffs on around 1,100 Chinese imports worth $50 billion, targeting high-tech goods as part of U.S. President Donald Trump's attempts to get Beijing to halt its "Made in China 2025" initiative to nurture Chinese industries.
China retaliated quickly by slapping retaliatory tariffs on American agricultural products, cars and motorcycles also worth $50 billion.
China and the U.S. are Korea's No. 1 and 2 trading partners, with China accounting for 25 percent and the U.S. for 12 percent.
An even bigger problem is that the U.S.-China trade dispute will shatter the global commerce structure and escalate protectionist trade policies, resulting in shrinking worldwide trade.
The Korea International Trade Association said if the U.S., China and the EU each raise tariffs by 10 percentage points, Korea's exports would drop by $36.7 billion. That is equivalent to 6.4 percent of Korea's total exports in 2017.
Already Korea's economic fundamentals have weakened significantly. Recently, the state-run Korea Development Institute forecast that major economic indicators including private consumption, investments and production will either suffer slowed growth or decline in the second half of this year.
The U.S.-China trade war impacts Korea's economy directly and indirectly. First to be affected will be intermediate goods exports to China for semiconductors, petrochemicals and machinery, which China then uses to export finished products to the U.S.
Intermediate goods accounted for 78.9 percent of Korea's total exports to China last year. The Chinese-made semiconductors the U.S. is planning to slap tariffs on are actually made in the Chinese factories of Samsung Electronics and SK Hynix.
One staffer at a Korean semiconductor manufacturer said, "Korean companies are about to become victims of U.S. measures intended to use to deliver a blow to Chinese companies." And Choi Won-mok at Ewha Womans University added, "Retaliatory measures by the U.S. and China are impacting the entire global economy. Seoul needs to defend itself by turning to the WTO to complain about unfair tariffs."
The latest developments are also raising calls for the Moon Jae-in administration to slow down the pace of boosting the minimum wage and reducing the working week.
Ha Joon-kyung of Hanyang University said, "Our economy is not strong enough to withstand the current governments economic policies. We need to let businesses breathe first by easing regulations."
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