Don't Obsess Over Reshoring After COVID-19... "Focus on Australia, Canada, Belgium, Singapore, Hong Kong"

Increasing Employment and Investment by Bringing Back Export Companies as a Basic Strategy
"Countries with High Trade Dependence Must Unite to Overcome the Wave of Block Economies"

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] A new argument has emerged that instead of focusing excessively on reshoring policies that bring overseas companies back to Korea to create jobs and performance, the country should generate national wealth by enabling companies to produce goods locally and sell them immediately. It is advised to pay attention to countries with high trade dependence and active external engagement, such as Australia, Canada, Belgium, Singapore, and Hong Kong.

According to the government on the 15th, the Ministry of Trade, Industry and Energy is providing over 316 trillion won in trade finance support to export companies and corporate tax benefits (full exemption for 5 years, 50% reduction for the following 2 years) when U-turn companies expand their domestic business sites. The intention is to encourage earning money and creating jobs domestically.

Some in academia say that while the direction of reshoring policy is not wrong, efforts should also be made to help companies that have gone overseas generate profits locally. In the 'post-COVID' era, as uncertainty increases and countries openly adopt regional trade restrictions through block economies, it will be difficult to strengthen bargaining power in negotiations to secure global value chains (GVC). Therefore, consideration of gradually lowering trade dependence cannot be ruled out.

For example, Japan’s trade dependence is in the 20% range, and even China, with its vast territory, is below 40%. Korea’s trade dependence exceeds 90%. The reason Japan’s trade dependence is lower than Korea’s is not because it trades less, but because it excels at 'disourcing'?producing goods locally and selling them locally. By reducing the proportion of goods that need to be transported relative to the size of the economy, countries can respond more effectively even when trade barriers rise.

It is necessary to actively pursue comprehensive economic partnership agreements such as the Regional Comprehensive Economic Partnership (RCEP) and multilateral free trade agreements (FTAs) by finding disourcing partners that can jointly avoid major countries’ trade barriers. If protectionism spreads, countries with high trade dependence like Korea will face fundamental survival threats, so Korea must proactively adopt strategies to attract these countries first. Taking advantage of China’s weakened negotiating power due to the direct impact of COVID-19, Korea can organize related meetings, rise as a leader, and raise its voice on issues like the U.S. Trade Expansion Act Section 232, thereby gaining favorable positions in multiple multilateral negotiations.

Academia points to Australia, Canada, Belgium, Singapore, and Hong Kong as candidate partners. It is urged to adjust negotiation priorities toward these countries and consistently send the message of forming a new group led by Korea. The reasons include: ▲high external trade dependence similar to Korea’s, ▲a large number of companies, ▲economic strength and industrial activity sufficient to pursue common interests with Korea, and ▲valuing external policies and inter-country partnerships as important values.

Professor Choi Wonmok of Ewha Womans University Law School said, “The reshoring policy to make Korea a 'country where companies want to operate,' bringing back large corporations to increase investment and jobs, is fundamental,” but added, “The future trade environment will be difficult to navigate with a complacent view that simply lowering dependence on China is enough. We must form trade groups with countries similar to us to increase bargaining power and effectively respond to trade barriers imposed by various countries.”

Within domestic industries, it is urged to immediately foster untact (non-face-to-face) services, digital distribution, and manufacturing related to intellectual property rights. These industries are suitable for 'disshoring'?producing overseas and selling locally?and can respond well to trade barriers, but due to initial funding difficulties, they need to be steadily developed from now on.

Specifically, untact services, digital distribution, the bio industry, and hydrogen/electric vehicles were cited. Professor Choi emphasized, “We must create next-generation domestic products and services at a level where there are no substitutes to survive the rising global trade barriers. With mediocre competitiveness, we will be blocked by tariffs and quota-based trade barriers, so it is time to establish a fundamental technology innovation support system that enables the development of products at a level so high that other countries cannot challenge during the initial monopoly period.”

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