Korea Ship Shaken, Blocked by Trade Barriers Despite Relying on Trade for Livelihood

Japan also bans entry following China... US may strengthen restrictions
Top 3 trading partners account for 50% of exports, raising concerns of economic strain
Deputy Prime Minister Hong Nam-ki "Possibility of economic activity constraints"

[Image source=Yonhap News]

[Asia Economy Reporters Kwangho Lee, Sehee Jang, Chaeseok Moon] As more countries lock their borders due to the spread of the novel coronavirus infection (COVID-19), economic activities such as trade and investment are facing emergencies. In particular, since major trading partners are successively restricting entry, South Korea, which has a high dependence on trade, is expected to suffer considerable damage. The problem arises if the COVID-19 situation prolongs. If the global economy contracts as a result, South Korea could fall into a 'groggy' state.

Trade experts urge the government to devise extraordinary measures, such as significantly expanding trade finance.

According to the Ministry of Strategy and Finance, Ministry of Foreign Affairs, and Ministry of Trade, Industry and Energy on the 6th, Japan, South Korea's third-largest trading partner, decided to restrict entry of Koreans following China, the top trading partner. Previously, major countries such as Vietnam, Australia, and Russia also blocked entry of Koreans. As of 1 a.m. on the 6th, the number of countries restricting entry of travelers from South Korea exceeded 100. The United States, the second-largest trading partner, has not imposed a full entry ban but may strengthen restrictions in the future.

◆ Deputy Prime Minister Hong Nam-ki: "Possibility of Constraints on Economic Activities such as Trade and Investment" = On this day, Hong Nam-ki, Deputy Prime Minister and Minister of Strategy and Finance, stated at the Foreign Economic Ministers' Meeting, "As entry restrictions on travelers from South Korea increase, there is a possibility that not only human exchanges but also economic activities such as trade and investment will be constrained," adding, "We will mobilize all diplomatic efforts to promptly restore entry restrictions on Koreans to their original state and minimize the aftereffects of these restrictions."

As of 2018, South Korea's export ratio to GDP was 44%, and the export ratio to the top three trading partners accounted for 50% of total exports.

In other words, the South Korean economy could suffer a critical blow due to these countries. In fact, if exchanges with Japan are blocked, there could be significant disruptions in imports of key materials and machinery. Since Japan imposed export regulations on July 1 last year, immediate responses have been difficult, and the entry restrictions on Koreans are expected to shock corporate activities and the overall economy.

Due to Japan's entry ban, the 8th Korea-Japan Export Control Policy Dialogue scheduled for the 10th is likely to be postponed. Given the COVID-19 spread and Japan's restriction on Korean entry, it is widely believed that holding the dialogue will be difficult. Regarding this, the Ministry of Trade, Industry and Energy stated, "There are no changes yet," but could not hide its unease. Minister Sung Yun-mo also urged at the Foreign Economic Ministers' Meeting, "We call on the Japanese government to lift the strengthened export control measures against South Korea and restore export regulations between the two countries to the levels before July 1 last year."

◆ South Korea Faces Greater Damage... Experts Call for Expansion of Trade Finance = Corporate damages are already becoming visible. The aviation industry, in crisis, appears dismayed. Major international routes to China, Southeast Asia, and Europe have been successively suspended due to COVID-19, and even the Japan routes, which had been maintained, are at risk of being cut off.

For low-cost carrier (LCC) Eastar Jet, only four Japan routes are currently operated internationally, but if Japan's entry restrictions on Koreans take effect, it will have to suspend its international operations. Korean Air, operating ten Japan routes, faces the same situation.

Samsung Electronics has been sending employees monthly to its Vietnam factory, which produces 150 million phones annually?half of its total mobile phone production?but Vietnam's ban on Korean entry has blocked business trips there. LG Display planned to start mass production this month at its organic light-emitting diode (OLED) factory in Guangzhou, China, completed last year, but employees on business trips have been quarantined, delaying the production schedule itself.

The government is at a loss. A government official expressed frustration, saying, "There is nothing we can do immediately due to the entry bans on Koreans by major countries."

Trade experts say that damage to domestic exports and consumption is inevitable and advise the government to prepare extraordinary measures such as further expanding trade finance support. The government decided on the 20th of last month to increase the trade finance scale by 3.1 trillion won from the original plan to 260.3 trillion won, but voices call for further expansion.

Professor Jeong In-kyo of Inha University's Department of International Trade said, "Trade with global countries may become more difficult due to COVID-19," and predicted, "South Korea, with a high export ratio, will suffer more serious damage."

Former President of the Korean International Trade Association, Kang In-soo, said, "In the short term, trade finance support should be increased to reduce damage to export companies caused by the spread of COVID-19," adding, "Companies facing bankruptcy will experience significant temporary financial pressure." He also noted, "The global value chain (GVC) is currently being reorganized, but the government is unable to intervene in this area," and emphasized, "The government should create an environment where companies can position themselves well."

This content was produced with the assistance of AI translation services.