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The effect of a global trade war on South Korean exports

A rise in the average global tariff rate to 20% from its current 4.8% would result in US$50.5 billion in lost exports and the loss of around 460,000 jobs for South Korea, researchers predicted in an analysis of the effects of a global trade war in which countries around the world compete to raise tariffs.

A report titled “The Outbreak of a Tariff War and Crisis for the South Korean Economy” published on Mar. 19 by the Hyundai Research Institute (HRI) shared the results of an analysis and projections in the event that a localized trade war among major trade powers escalates into a competitive increase in tariffs around the world, positing scenarios in which the global average tariff rate of 4.8% rises to 10%, 15%, and 20%.

A panel-based regression analysis for 206 countries (35 advanced economies and 171 developing economies) with available data on trade volumes and tariff rates between 1988 and 2016 showed a percentage point increase in global tariffs rates to be associated with a projected 0.48% average decline in trade volumes for individual countries. An increase in the average global tariff rate to 10% would result in a 2.5% decrease in average national trade volumes, while increases to 15% and 20% were respectively predicted to lead to declines of 4.9% and 7.3%.

“Given the South Korean economy’s heavy dependence on the external sector, a decline in global trade volumes would inevitably translate into a huge shock for the real economy,” the report said. An increase in the average global tariff rate to 10% would cause US$17.3 billion in lost exports for South Korea, while increases to 15% and 20% would respectively result in losses of US$33.94 billion and US$50.58 billion, it predicted. South Korea’s export total for last year was US$573.8 billion.

As a small-scale, open economy, South Korea would also face a decline in its economic growth rate and a large loss in jobs if exports decrease. HRI predicted respective declines of 0.6, 1.2, and 1.9 percentage points in the economic growth rate and 158,000, 311,000, and 463,000 jobs with increases in the average tariff rate to 10%, 15%, and 20%.

“This analysis only took into account the effects of increased tariffs, and the economic ripple effects stand to increase further with the competitive currency devaluation and important restriction measures that may also occur in the event of a global trade war,” the institute said.

By Cho Kye-wan, staff reporter

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