U.S.-China trade war can be an opportunity for Korea

The Trump administration announced on Tuesday (local time) its plan to impose an additional 10-percent tariff of 200 billion dollars (approx. 223.2 trillion won) on Chinese goods. The United States said on Friday that it would slap a 25-percent tariff of 34 billion worth on Chinese goods and China immediately hit back by imposing a similar 25-percent tariff on U.S. products. In response, the United States escalated trade war by announcing a second round of tariff hikes on greater amount of Chinese products.

The United States is planning to impose a high tariff of 250 billion dollars on Chinese imports, including the extra tariffs that apply 16 billion dollars on Chinese goods. This is almost half of China’s exports to the United States, which amounts to 505.5 billion dollars. The United States Trade Representative (USTR) issued a list of 6,031 Chinese imports, target of the extra tariffs, which include bags, clothes, televisions and flat panel displays. The main target among them is items related to “China Manufacturing 2025,” which is an initiative by the Chinese government to promote high-tech manufacturing, such as self-driving cars and artificial intelligence (AI) technologies.

A study by the Korea Institute for Industrial Economics & Trade (KIET) found that if the United States slaps tariffs on 50-billion-dollar worth of Chinese products, and vice versa, it will hurt domestic exports by 334 million dollars a year. It would be difficult to estimate the damage on domestic imports if tariffs were introduced on 250-billion-dollar worth of goods. In the short term, it would deal a serious blow to Korean companies exporting intermediate products to China, which is the largest export destination of Korea, including 80 percent of Korea’s intermediate product export.

If we cannot avoid damage from the global trade war, we should find ways to turn crisis into opportunities. Korea should take this opportunity to expand the export of high value-added finished products to China, while moving away from exporting mostly intermediate goods. It is a great chance for Korean manufacturers to expand their market share in the areas they compete against Chinese manufactures in the United States, such as flat panel display. Above all, the trade war between the United States and China has earned Korean companies some time to strengthen their competitiveness while Chinese high-tech companies, which are nipping at the heels of Korean companies, are clobbered by the trade war. The trade war between the United States and China can be an opportunity for Korea just like it turned an external economic crisis into an opportunity to improve its fundamentals.