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Trump’s tariffs rattle Korea a bit

Kospi, won recover but escalating of China trade war could hurt
Sept 19,2018
Korea’s markets were spooked Tuesday after U.S. President Donald Trump ordered a 10-percent tariff to be levied on $200 billion worth of Chinese imported goods as of Sept. 24, intensifying a trade war between the countries that could affect the export-dependent Korean economy and the entire global trade system.

The won depreciated against the U.S. dollar early Tuesday in response to the White House action.

The benchmark Kospi started trading Tuesday more than 0.6 percent, or 14.79 points, down from Monday’s close.

But the market started to recover after noon, and ended up closing 0.26 percent or 5.97 points higher than the previous day at 2,308.98.

The won weakened as much as 1,130.20 won against the dollar, which was 3.70 won more than the previous day. But like the Kospi, pressure eased and the won closed 0.24 percent lower or 2.70 won less than the previous day’s close at 1,123,80 won against the greenback.

Instability in the financial markets started after the White House released a statement on Monday about the additional tariffs on Chinese goods.

“Today, following seven weeks of public notice, hearings and extensive opportunities for comment, I [Donald Trump] directed the United States Trade Representative to proceed with placing additional tariffs on roughly $200 billion of imports from China,” Trump said in the statement. Those new 10-pecent tariffs will be raised to 25 percent at the beginning of next year.

Trump added that the U.S. will immediately impose tariffs on an additional $267 billion worth of imported goods if China takes retaliatory actions.

China has warned it will impose tariffs of between 5 and 25 percent on $60 billion worth of American imports if the U.S. went forward with the tariffs on $200 billion worth of its exports.

The Chinese Commerce Ministry did not release an immediate response.

The Trump administration already imposed 25 percent tariffs on $50 billion worth of Chinese imports.

The first move was made in July on imports worth $34 billion and the tariffs were extended to $16 billion more Chinese imports in August.

Last year China exported $505 billion worth of goods to the U.S.

On the flip side, China imports only $130 billion worth of American goods each year.

Korean think tanks have estimated that the first two rounds of tariffs on $50 billion worth of imports - and China’s counter-tariffs - would not have a major impact on the Korean economy.

The Korea Institute for Industrial Economics and Trade estimated that Korea could see a shrinkage of $330 million worth of goods exported to China and the U.S.

The Institute for International Trade, which is under the Korea International Trade Association, estimated that Korea’s GDP could dip 0.018 percent or $236.5 million.

In fact, Korea’s exports to the U.S. grew 1.5 percent in August. Exports to China has surged 20.8 percent, but largely because of a base effect: last August, China was retaliating against Korea’s deployment of a U.S. anti-missile shield, and exports were affected.

But the escalation of the trade war brings the threat to Korea closer.

”A 25% tariff rate on $200 billion of Chinese products would also cause significant collateral damage to other Asian economies that are part of the East Asian manufacturing supply chain, since around one-third of the value added in Chinese exports consists of imported foreign raw materials and intermediate goods, much of which is sourced from East Asian economies,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]