Hankyung Research Institute "Linked Delivery Price System Worsens Damage to Small and Medium Enterprises"

Impact Analysis of a 10% Increase in Raw Material Prices

[Asia Economy Reporter Park Sun-mi] As raw material prices surge, the legislation of the delivery price linkage system is gaining momentum, raising concerns that the burden on small and medium-sized enterprises (SMEs) will increase.

According to a report titled "Economic Impact of Introducing the Delivery Price Linkage System" by the Korea Economic Research Institute (KERI) on the 2nd, assuming a 10% increase in raw material prices and reflecting this in delivery prices, demand by large corporations for domestic SME products is estimated to decrease by 1.45%, while demand for overseas SME products is expected to increase by 1.21%.

The report analyzed the impact of introducing the delivery price linkage system on transaction relationships between large and small businesses, jobs, consumption, investment, and trade by dividing five raw material industries and twelve industries into SMEs and large corporations.

The report stated, "If the delivery price linkage system causes large corporations' product prices to rise, the production costs of SMEs using these as intermediate goods will also increase. Therefore, large corporations will replace domestic SME products with relatively cheaper imported goods to reduce production costs," adding, "Ultimately, the introduction of the delivery price linkage system will weaken the domestic industrial ecosystem."

The report estimated that total output of large corporations would decrease by 0.93%, and SME output would also decline by 0.14%. It argued that government intervention in market prices harms the very entities it aims to protect, and the delivery price linkage system is no exception.

With production declines in both large corporations and SMEs due to the delivery price linkage system, demand for labor would decrease, resulting in a loss of 47,000 jobs and a 0.2 percentage point increase in the unemployment rate. The system is said to cause job losses and reductions in real wages, thereby harming workers as well.

Additionally, losses incurred by large corporations from rising delivery prices are passed on to consumers through increased product prices. The consumer price index is estimated to rise by 14%, consumption to decrease by 0.14%, and investment to decline by 0.25%. The report also projected decreases in corporate operating profits, household incomes, government revenues from corporate and income taxes, and value-added tax revenues due to reduced consumption, resulting in an overall 0.2% decrease in government tax revenue.

Furthermore, with trade terms worsening by as much as 15%, exports are expected to fall by 0.97%, while imports decrease by only 0.46%, leading to a 10% deterioration in the trade balance. Ultimately, GDP is projected to decline by 0.29%, indicating that the delivery price linkage system has a significant negative impact on the national economy.

Research Director Cho Kyung-yeop stated, "If we rely solely on government protection and the goodwill of large corporations under the slogan of coexistence and development among large, medium, and small enterprises rather than competition, exclusion from the global supply chain is inevitable," adding, "To continuously maintain relationships with leading companies, relentless technological innovation through competition is necessary."

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