Preparations Required Against U.S. Expansion of Protective Trade Due to Widening Deficit

There came an assertion that we should prepare for weakening dollar caused by the expansion of current-account deficit.

In the report titled `The expansion of U.S. current-account deficit and the influence on Korean economy, ` the Federation of Korean Industries (FKI) on the 5th announced that U.S. current-account deficit possibly reach 5 percent of Gross Domestic Product (GDP) this year, and 6 percent next year.

FKI analyzed that though the expectation for the recovery of Korean economy is mounting with the recovery of U.S. economy, there is a worry that expanding U.S. current-account deficit may cause dollars weakened. Hence, companies are required to prepare for the strategies against devaluation of dollar assets.

U.S. current-account deficit increased to 417.4 billion dollars (4.1 percent of GDP) last year from 85.3 billion dollars (1.3 percent of GDP) in 1993. That is because U.S. imported much consumption goods and capital goods as investment and consumption increased with the rapid growth of yearly 3.7 to 4.3 percent during last 10 years.

When economic recovery is accelerated in the second half of this year, U.S. might raise interest rate for fear of overheating, causing consumer demand to decrease. Then, exports of Korea would not recover as expected.

In addition, U.S. is much expected to strengthen the protective trade, and urge Korea to correct the black ink balance. Hence, FKI suggested that Korean exporters expand shipments to European Union and Southeast Asia, where economy is recovering, while scaling down dependence on trade with the United States

ysshin@donga.com