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(EDITORIAL from Korea Times on Sept. 2)

All News 06:56 September 02, 2022

Soaring trade deficit
Time to map out new strategy for sustainable growth

South Korea has posted a snowballing trade deficit, dealing a severe blow to the export-oriented economy. The shortfall reached $9.47 billion last month, the largest amount since the country began compiling trade data in 1956, according to the Ministry of Trade, Industry and Energy on Thursday.

No less problematic is that the trade imbalance has lasted for five consecutive months, a setback not seen since 2008 during the global financial crisis. The downward march is expected to continue for the time being as the global trade environment has become worse due to mounting downside risks such as soaring energy prices, higher interest rates and the weakening Korean won against the U.S. dollar.

The widening trade imbalance was the result of surging imports which eclipsed export growth. In August, Korea's exports increased 6.6 percent year-on-year to $56.67 billion. However, its imports surged 28.2 percent to $66.15 billion. The gap stemmed mainly from the high prices of oil and gas amid the prolonged Russian war in Ukraine. Energy imports skyrocketed 91.8 percent to $18.52 billion last month.

What's somewhat fortunate is that Korea still enjoys a surplus in its current account, a broader measure of a country's global trade in goods and services as well as net earnings on cross-border investments. The surplus is estimated at about $25 billion for the first eight months of the year, compared with the $24.7 billion trade deficit for the same period.

It is important for the country to maintain its current account surplus, although its amount is likely to drop in the face of the rising trade deficit. If the surplus goes into the red, Korea will face a triple deficit together with the trade and fiscal deficits. In that case, Korea's sovereign ratings could be downgraded. This could make it difficult for the country to cope with any potential economic and financial crises.

That's why the Yoon Suk-yeol administration must make strenuous efforts to stem the trade shortfall. It also needs to do more to regain fiscal health by reducing a budget deficit and national debt. On Wednesday, the government announced a set of measures to boost exports by strengthening the competitiveness of Korean goods. The measures include the provision of more financial support for exporters and the lifting of trade-related regulations. But they are insufficient to improve the trade imbalance. The country must map out a new strategy to promote exports and ensure sustainable growth.

Policymakers should do their best to minimize the fallout from the global economic slowdown. It is also necessary to reduce the country's excessive reliance on China, its largest export destination, and explore new markets in other parts of the world. Such a reduction is also crucial in dealing with geopolitical risks arising from the intensifying Sino-U.S. rivalry. The government should step up its trade diplomacy to tackle the emerging new global trade order amid U.S. efforts to create its own supply chains apparently designed to exclude China.

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