Korea may fall victim to US-China trade war

[能田]

(Finance The Korea Times Monday 23 July 2018)

Korea may fall victim to US-China trade war

Updated : 2018-07-23 17:53

By Park Hyong-ki

South Korea is likely to fall victim to the escalating trade dispute among the United States, China and the European Union, as the row could develop into a currency war, analysts said Monday.

The concern is brewing as U.S. President Donald Trump accused China and the EU, Sunday, of manipulating their respective currency markets.

The fallout stemming from the U.S.'s trade protectionism policy will spread over to the global currency market, according to experts, dealing a severe blow to the Korean economy, which is heavily dependent on the U.S. and China.

This is where not only the economic powerhouses but also developing countries are expected to duke it out to maintain the value of their currencies in the interest of their economies.

And Korea is likely to remain powerless in the tariff crossfire between the world's two biggest economies, said Kim Doo-un, an economist at KB Securities.

Asia's fourth-largest economy will get its "back crushed in a whale fight" as the proverb says.

It is practically a "sitting duck," lacking any real countermeasures to use against the two giants.

"The country may have to brace for a prolonged trade battle between the U.S. and China as both sides are further pushing the envelope on tariffs. They have not toned down their rhetoric," Kim said.

"We may see a trigger being pulled either first by the U.S. or China in the global currency market. This is going to affect Korea no matter what."

China is expected to keep the value of the yuan weak against the U.S. dollar in the short run, reflecting China's slow economy. It advanced 6.7 percent in the second quarter of this year.

It is also unlikely China will back down against the U.S. as it wants to protect its reputation in the global economy, the economist added.

Shin Dong-soo, an analyst at Eugene Investment & Securities, concurred, saying the trade war could ignite a currency war as the U.S. recently criticized China's currency policy.

"China's weak yuan could further warrant the U.S. to impose tariffs on Chinese goods. This conflict could then expand into the currency market," Shin said.

Korea has been named along with other small but open economies including Singapore, Taiwan and Hungary that are about to fall "victims" to the U.S.-China trade war, the Wall Street Journal reported, citing data from the World Trade Organization and the National Institute of Economic and Social Research.

Given these countries' high dependence on the Chinese and American economies for growth, their exports to the two economic powerhouses will suffer.

U.S. President Donald Trump has upped the ante against China and the EU, saying they are "ripping off" the U.S. and making "easy money" through currency manipulation.

Germany, the largest economy in the EU, warned the U.S. its trade protectionism would only "downgrade and worsen" the global economy. It added protectionism had not helped the global economy overcome past financial crises.

The International Monetary Fund (IMF) forecast the global economy's growth would slow to 0.5 percentage points a year on average by 2020 should the U.S. and China impose further tariffs on the massive amounts of goods traded between the two.

The IMF, however, has kept its 2018 growth forecast unchanged at 2.9 percent for the U.S., and 6.6 percent for China.

The government recently revised down Korea's growth forecast to 2.9 percent this year.

However, uncertainties over the global trade war and the local job market would make it difficult for the country to come within reach of that figure, analysts say.

"The time is ripe for this country to use this opportunity to rapidly pursue economic reform because this global conflict is not likely to settle down anytime soon," Kim said.