South Korean exports are facing three kinds of difficulties. Small and medium-sized enterprises (SMEs) are suffering in the face of the yen’s decrease amid their trade dependence on certain nations such as China is increasingly growing. After the rapid export growth of automobiles and cell phones, which have driven the nation’s exports for two to three years, the nation is still exploring new growth engines other than semiconductors. This unstable status of the export environment is thus posing a threat to the Korean economy.
Korean exporters are on alert over fluctuations of foreign exchange rate, which determine their price competitiveness and profitability. As the yen is decelerating at a faster speed with the US’s end of quantitative easing programs, Korea’s exports to Japan during the January-September period recorded $23.5 billion, down 4.1 percent from the same period a year ago. The yen’s drop is leading the nation’s companies to risk losing their competitiveness in the United States and EU.
The devaluation of the yen is also serving as an obstacle to Korean exports to China. The decision to extend the Korea-China currency swap deal is part of efforts to offset the weaker yuan. Amid the stronger won and weaker yen in the first half of this year, the won-yuan exchange rate appreciated as much as 9.3 percent.
Against the expectations that conclusions of a series of promising free trade agreements would broaden the nation’s trade territory, trade dependency on specific areas is growing. The trade balance with the EU already exceeded a $6.5 deficit in September this year while the trade deficit with the EFTA is expected to reach $3.9 billion this year.
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