The Trade, Industry and Energy Ministry and the Korea Customs Service said on Saturday that Korea’s trade deficit reached a record high of 10.3 billion dollars during the first half as import continuously outpaced export in April to June this year. It is the first time in 14 years since the Great Recession in 2008 that the nation’s trade deficit has continued for three consecutive months.
The biggest ever trade deficit has occurred because energy and raw materials prices have soared due to supply shortages caused by Russia’s invasion of Ukraine. The crude price increased 1.6 times, natural gas price jumped 3.3 times, and coal price gained 3.5 times during a one-year period, forcing Korea to increase energy export by nearly 90 percent year-on-year in the first half. In contrast, Korea’s export, which would post double-digit growth for 15 consecutive months, only gained 5.4 percent in June. “Disruptions in production and shipment caused by truckers’ strike resulted in a decline in automobile and general machinery export,” the ministry said. Trade data has thus slumped due to shock from external factors, which was further aggravated by internal problems.
The problem is that trade deficit will more likely become chronic rather than temporary. Korea’s terms of trade have significantly worsened due to slumping U.S. and Chinese economies and the global supply crunch. As energy demand soars during the hot summer season amid constantly high oil prices, Korea could see its trade deficit grow further. If global inflation and instability in supply networks get protracted, Korea may find it difficult to overcome the crisis. Companies have already predicted that electronics and electrical, steelmaking, and petrochemicals sectors will face a decline in export in this year’s second half.
The benchmark KOSPI index fell below the 2,300 level on Friday for the first time in 18 months in the face of concerns over a global economic recession coupled with Korea’s significant trade deficit. If Korea, which is highly dependent on export for its economic growth, fails to reverse trade deficit, the broader economy could fall into a slump. The government has suggested measures to support export by smaller companies, including the expansion of public logistics centers for small and medium enterprises, and operation of permanent virtual exhibition portals, but the current crisis is hardly a small problem that can be resolved with such short-term stopgap measures. The government authorities should reach out to industrial sites directly and take a listen to what companies have to say about challenges they face. Korea should urgently start operating a system for supporting industries on all different fronts to overcome the double whammies of chronic trade deficit and slow growth.