US, China tariffs would slow S. Korean growth by 0.34 percentage points

Est. growth slowdown resulting from additional tariffs between US and China

US tariffs would cause much more direct damage than Chinese ones

Est. growth slowdown resulting from additional tariffs between US and China

Amid a continuing trade dispute between the US and China, a report finds that, if the US and China enforce all the tariffs they’ve threatened to impose by this December, South Korea’s economic growth rate could fall by 0.34 percentage points.

That was the conclusion of a report titled “Assessment of Risk Factors in the Chinese Economy and Implications” that was released by the Korea Development Institute on Nov. 4.

Most of the drop in the growth rate, or 0.32 percentage points, would be caused by American tariffs on Chinese goods, with just 0.02 percentage points resulting from Chinese tariffs on American goods. In short, American tariffs will be responsible for the brunt of the shock on the Korean economy.

The report also analyzed how the slowdown in Chinese exports and domestic demand (a result of the trade dispute with the US) is impacting the South Korean economy. Sluggish exports were found to reduce South Korea’s economic growth rate by 0.16 percentage points and sluggish domestic demand, by 0.18 percentage points. Since more of South Korea’s exports to China are consumed in the Chinese market than are processed there and re-exported to the US, falling domestic demand in China has a greater impact on South Korea.

From last year until this May, the US imposed 25% tariffs on a total of US$250 billion worth of Chinese products. Then in September, it decided to impose 15% tariffs on a total of US$300 billion worth of Chinese products, though it has delayed some of these tariffs, including those on mobile phones, until Dec. 15. While the US had threatened to increase the duties imposed last year to 30% in October, it also deferred this measure. China has retaliated by imposing duties ranging from 5 to 25% on a total of US$110 billion worth of American goods, including soybeans.

“A substantial amount of the tariffs promised by the US and China have already been imposed, and not much remains. Since the tariffs are taking force in phases, the impact will continue through this year and the next, but the impact of the tariffs imposed last year is already reflected to a significant extent in this year’s economic growth rate,” said Kim Seong-tae, head of economic prospects at the KDI and the author of the report.

The report warned that, since the continuing trade conflict between the US and China could cause a rapid slowdown in growth in the Chinese economy, South Korea needs to be on guard for an overseas trade shock: China is the destination of a large share (26.8%) of South Korea’s exports.

“In the short term, an expansionary fiscal policy and a loose monetary policy should be combined to defend against an economic downturn. On a more fundamental level, we need to improve the constitution of our economy by rolling back regulations and by straightening out poor-performing companies,” Kim said.

By Lee Kyung-mi, staff reporter

Please direct comments or questions to [[e-mail]]