South Korea is undergoing a significant decline in economic growth due to international economic headwinds and geopolitical disruptions caused by the ongoing trade war between the United States and China.
During the first quarter of 2019, South Korea’s gross domestic product (GDP) contracted 0.3%, according to the Organization for Economic Co-operation and Development (OECD). South Korea’s lack of economic growth in the first quarter of 2019 is due to its dependence upon exports to the U.S. and China.
South Korea’s economy is built upon an industrial manufacturing base, which is common among export-focused economies. According to the World Bank, industry accounts for more than 39% of South Korea’s economy. That is more than double the percentage of its second-largest trading partner, the U.S.
Industrial economies that depend upon large trade surpluses are particularly susceptible to international headwinds. For example, Germany has been experiencing an economic slowdown as it adjusts to stagnant international economic growth. South Korea is experiencing a similar slowdown, especially with its two largest trade partners, China and the U.S., engaging in a trade war.
China is by far the largest trade partner for South Korea, with more than 25% of South Korea’s exports being shipped to China and over 20% of its imports coming from China. As China is focused on dealing with the U.S. and the ongoing trade war, China’s imports from countries such as South Korea, Germany and Japan have declined year-over-year. Exports from China to South Korea also have fallen as domestic manufacturing has struggled during the trade war.
Using the Bluewater Reporting Capacity Report application, exports from China to South Korea, Japan and Eastern Russia can be measured. Most of these exports arrive in South Korea and Japan, but Eastern Russia is included due to the categorization of trade regions in the Bluewater Reporting database.
As shown in the chart above, estimated weekly allocated capacity from China to Korea, Japan and Eastern Russia has declined from its high in 2017. Estimated weekly allocated capacity on the trade fell from 94,053 TEUs in April 2017 to 85,089 TEUs in April 2018, a 9.53% reduction, and remained relatively stagnant over the past year, coming in at 85,482 TEUs as of April, up a modest 0.46% from April 2018.
Imports from South Korea, Japan and Eastern Russia to China also can be measured using BlueWater Reporting’s Capacity Report. Most of these imports are from South Korea and Japan, but Eastern Russia is included due to the categorization of trade regions in the Bluewater Reporting database.
As the trade war between the U.S. and China continues, export-based economies like South Korea will continue to be negatively impacted, and because China and the U.S. are South Korea’s top trading partners, South Korea in particular is especially susceptible to externalities produced by the trade war.
In the future, a continued trade war will produce suboptimal economic growth for South Korea. It is in South Korea’s best interest to attempt to broker a deal between its two largest trading partners.