[Square] Preparing for Export-Import Risks Originating from Russia

Last year, domestic trade showed a considerably positive trend due to the economic recovery of major global countries and the base effect following the COVID-19 economic crisis. Exports reached $644.4 billion, surpassing the previous record high of $604.9 billion set in 2018. Imports also exceeded $600 billion for the first time, and the total trade volume, combining exports and imports, reached an all-time high of $1.2595 trillion.

By product category, not only the main export industries such as semiconductors, petrochemicals, and automobiles but also new industries like biohealth and secondary batteries showed steady export growth, which was highly significant. However, from the trade balance perspective, due to the rise in global raw material prices and other factors, imports increased faster than exports, resulting in an annual trade surplus of $29.31 billion, the smallest since 2012 ($28.29 billion).

Amid the polarization of the US-China hegemonic rivalry and the rise of nationalism, concerns are growing about the impact of the Russia-Ukraine war on the domestic import-export environment. The most problematic issue is the sharp rise and increased volatility in global raw material prices. Since South Korea depends heavily on imports for most raw materials, fluctuations in raw material prices immediately lead to higher import prices. Additionally, Russia produces about 11% of global crude oil and 17% of natural gas, as well as a significant share of various industrial metals such as nickel, palladium, diamonds, and vanadium.

Currently, there are differences in stance among Western countries depending on their reliance on Russian raw materials, but there is a general consensus on the need for economic sanctions against Russia’s military actions. As the scope and intensity of international economic sanctions increase, the supply of various raw materials exported by Russia will tighten, potentially making it difficult for companies to secure stable purchases of raw materials. Moreover, if the worsening global export conditions prevent domestic companies from quickly reflecting the rise in raw material prices in global selling prices, it could lead to deteriorating profitability and earnings for companies.

Some damage may also occur on the export side. South Korea’s exports to Russia and Ukraine were relatively small last year, at about $10 billion and $580 million respectively, so direct export damage from the war is expected to be relatively limited. However, if Western economic sanctions against Russia are prolonged, there is a risk of economic and trade downturns not only in Russia but also in Western countries. JP Morgan analyzed that if Russia’s crude oil exports are completely cut off and international oil prices reach $150, there would be a downward pressure of 3.2 percentage points on global economic growth. Should such a scenario occur, domestic exports are also expected to slow significantly, with export deterioration particularly pronounced in the European market, which has a high dependence on Russian raw material imports.

Therefore, proactive and preemptive measures are necessary to address export-import risks stemming from Russia. First, efforts should focus on securing stable supply chains in preparation for prolonged instability in the raw material market. The stockpile of raw materials expected to face supply instability should be expanded, and the public and private sectors should cooperate to reestablish mid- to long-term raw material procurement plans. Additionally, companies need to strive to reduce costs to prepare for profitability deterioration, secure stable raw material supplies, and pursue export market expansion strategies targeting countries with relatively favorable economic conditions.

In the mid- to long-term, efforts to improve energy efficiency in the domestic economy and industrial structure and to increase energy supply through eco-friendly power generation must continue. To raise the self-sufficiency rate of raw materials necessary for new industry development, not only should the government and public institutions actively increase investments, but companies should also be provided with tax benefits and various incentives to participate in the raw material market.

Junbum Oh, Research Fellow, Economic Research Department, Hyundai Research Institute

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