The trickle-down effect of exports, which has supported the South Korean economy, is rapidly diminishing. The Bank of Korea predicted that this year, net exports would contribute essentially close to '0' to economic growth. As the country's industrial competitiveness has weakened, signs of expanding protectionism are emerging with the transition to the second term of the Trump administration. Experts advise that measures for industrial restructuring and nurturing new industries are necessary.
The contribution to growth indicates how much domestic demand (consumption, investment, government expenditure) and net exports (exports - imports), which make up the real gross domestic product (GDP), contribute to GDP growth. Since imports represent the value of goods produced overseas, they are deducted from GDP. Last year's GDP growth rate of 2.0% saw domestic demand contribute 0.1%p, while net exports contributed 1.9%p.
◇ Net export growth contribution averaged 0.6%p over the past 5 years
According to the Bank of Korea's Economic Statistics System on the 8th, from 2020 to 2024, the growth contribution of net exports remained around 0%p except for last year when semiconductor exports surged. The annual figures were ▲2020 0.5%p ▲2021 0.6%p ▲2022 0%p ▲2023 0%p ▲2024 1.9%p, resulting in an average of only 0.6%p.
In comparison to the figures from 2008 to 2012, which was the last global economic crisis before COVID-19, this is a significantly low level. During that time, the contribution of net export growth was ▲2008 1.7%p ▲2009 2.8%p ▲2010 -1.4%p ▲2011 0.8%p ▲2012 1.8%p, averaging over 1%p. This starkly contrasts with how net exports contributed to domestic economic growth even during the global financial crisis.
The added value induced by exports is also declining. The 'value-added induced coefficient,' which indicates the added value induced by a unit increase in final demand (exports, consumption, investment, etc.), fell from 0.680 in 2020 to 0.584 in 2022 for exports. This means that even if the same amount is exported, the positive effect on the domestic economy has decreased compared to the past. During the same period, the value-added induced coefficient for consumption dropped from 0.867 to 0.815, and for investment it fell from 0.833 to 0.774. This suggests that the ability of exports to create added value has deteriorated the most.
Lee Chang-yong, the Governor of the Bank of Korea, noted in a press briefing held right after the Monetary Policy Committee on the 25th of last month, "Looking at the impact of net exports on our economy over the past few years, excluding last year when the economy grew by 2%, the past 3-4 years have been nearly 0%p," and forecasted that the growth contribution of net exports would also be 0%p this year. He added, "The time when exports had a trickle-down effect like in the past is over."
◇ Experts: Urgent need for industrial restructuring and nurturing new industries like AI
The reason the growth contribution of net exports has declined is that the real export growth rate has not surpassed the real import growth rate. The exports and imports used in calculating real GDP are based on real values, which remove the effects of price fluctuations from nominal values rather than customs clearances. The real export growth rate in 2022 was 3.9%, while the real import growth rate was higher at 4.2%. In 2023, the real export (3.6%) and real import (3.5%) growth rates showed similar trends, limiting the growth effects based on domestic production.
The weakening competitiveness of the country's key industries is also a major cause. South Korea's representative export item, memory semiconductors, held a world market share of 29.1% in 2018, ranking first, but has since fallen to second place, dropping to 18.9% by 2022. The shipbuilding industry, which recorded 44% in 2018 and ranked first in the world, is now in a precarious situation with a market share struggling to stay above 20%.
The spread of protectionism is also a bad factor. Last year, the Korea Institute for International Economic Policy (KIEP) predicted that if the U.S. imposes a 20% universal tariff on imported products, South Korea's exports to the U.S. could decrease by up to $30.4 billion, and total exports could drop by up to $44.8 billion. If the response to this is inadequate, it has also been analyzed that real gross domestic product (GDP) could decrease by about 0.29-0.67%.
The Bank of Korea emphasizes the need for industrial restructuring. Governor Lee Chang-yong pointed out, "When U.S. tariff policies change, structural changes in the industry are needed, but no new industries have been introduced in South Korea over the past decade," adding, "To introduce new industries, social conflicts must be endured, but we have avoided this." He further noted, "It will be difficult to solve this problem without the emergence of new industries."
Expanding investments in new industries is also presented as an important solution. Professor Park Sun-young from Dongguk University stated, "Technology innovation investments in key export items such as semiconductors, batteries, and automobiles must come first, and there is a need to reorganize competitiveness in advanced manufacturing incorporating artificial intelligence (AI) technology," adding, "The government must focus on creating systems and environments to secure the global competitiveness of advanced industries."
Participation in multilateral trade agreements is also cited as an alternative for diversifying export markets. Professor Seok Byeong-hoon from Ewha Womans University said, "In addition to industrial restructuring, we should lower our dependence on China from the perspective of supply chains by joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)," adding, "This could diversify our export markets." The CPTPP is a free trade agreement (FTA) led by Japan, with 11 member countries including Japan and Australia.