[Editorial] Falling Behind in Northeast Asian Trade

Korea’s trade deficit with Japan is estimated to have jumped 3.2 billion U.S. dollars to 33 billion dollars last year, setting a new high. The figure is three times larger than Korea’s trade balance deficit of 13 billion dollars the same year. Moreover Korea’s trade surplus with China decreased five billion dollars to reach 14 billion dollars for 2008, falling for the third straight year. This is partly because Korea still heavily depends on Japan for parts and materials used to produce exported goods, while Korean exports of intermediary goods to China have plummeted since China’s exports have plunged in the wake of the global financial crisis.

Japan’s Finance Ministry says China’s trade surplus with Japan decreased from 24.3 billion dollars in 2007 to 16.8 billion dollars last year. This reflects the growing tendency of China to use parts and materials that it produces domestically, instead of importing them from Korea and Taiwan, two countries which have mid-level technology. China, however, still needs to import parts and materials from Japan, which has advanced technology. Korea is losing ground in Northeast Asian trade while Japan is strengthening.

Korea has failed to catch up with Japan technologically, and China is catching up rapidly to Korea. Certainly, Korea’s trade deficit with Japan is offset by its surplus with China. If Korea continues to lose its technological advantage over China, however, bigger difficulty will ensue.

Korea is heavily dependent on trade, so the trade balance significantly affects the economy. When the currency crisis hit the nation in 1998, Korea was able to export its way out of trouble due to the weaker won. Similarly, Korea’s financial and foreign exchange markets have stabilized partly because of the trade surplus in the fourth quarter last year.

Korea cannot survive the harsh competition in Northeast Asia as long as its economy is burdened with high labor cost and middle-level technology. It needs to further develop its industrial structure and create its own technologies to produce high-quality products that can compete in the global market.

Also, Korea’s militant unions, who have no counterparts in Japan and China, should change. The economic crisis is a good chance for labor and management to create a mutually beneficial framework. Heavy regulations on corporate activities should also be abolished soon.