For the past few daces, South Korea has experienced one of the most significant economic transformations globally due to globalization and International trade. Many studies have also attributed this economic transformation to the many policy reforms carried out in the country, which have opened this country to international markets. For instance, the export-oriented policies implemented by South Korea’s administration have improved the country’s GDP, placing it as one of the top exporters in the global markets. In this case, due to globalization and international trade, South Korea has leaped to high-income status thanks to several decades of sustained growth. However, globalization and International Trade have made South Korea face the various challenges that accompany globalization and international trade, such as the over-reliance on the international markets and trade imbalances as critical challenges.
The key objective of this paper is to provide a clear description of trade in South Korea, mainly focusing on the trade patterns of its trade partners. Moreover, the paper will be able to incorporate an economic theory in order to explain the context of South Korea, describing the positive and negative impacts of international trade and globalization in this region. Finally, the paper will provide recommendations that would greatly help in mitigating the negative impacts or amplifying the benefits of international trade and globalization in South Korea.
In order to fuel its economic growth, South Korea adopted an export-oriented economic strategy, making it among the largest exporters and importers globally. Since the late 1960s, South Korea, through economic reforms, has been able to increase its GDP faster than its trading neighbors, making it considered a manufacturing powerhouse in Asia. Moreover, South Korea’s trade success is also related to the country’s willingness to invest, which places a significant percentage level of GDP on economic development and research when compared to the United States, Germany, and the United Kingdom (Biswas, 2023). Heavily integrated into intentional trade and globalization, South Korea remains highly vulnerable to its trade partners. For example, China, as its main trading partners, had a 22.8% total import in 2022, followed by the United States with 16.1%, Vietnam recording 8.9%, Japan with 4.5%, and Hong Kong with 4% (Santander, n.d.).
South Korea’s trade balance remains structurally positive compared to China as its leading trading partner. According to World Trade Organization (WTO) research, South Korea recorded imports that amounted to USD 683.5 Billion in 2022. In the same year, the country recorded imports worth USD 731.3 billion, equivalent to +6% and 18%, respectively (Santander, n. d). Among the country’s most significant exports are ecteronic integrated circuits, petroleum oils, motor cars, telephone sets, and accessories. Exports include mineral oils, mineral fuels, electrical machinery, mechanical appliances, and coal, among others. However, despite South Korea having these high import figures, the country witnessed its largest-ever trade deficit, particularly on the high international energy prices. For example, South Korea’s exports declined by 7.4% due to the restrictive monetary policies implemented by its trading partners, and the slowing Chinese economy has an impact on South Korea’s demand for goods (Kim, 2024). In addition, South Korea recorded a trade deficit of USD 18 Billion with China, a recorded bilateral shortfall experienced between these two trading partners.
Nevertheless, South Korea resumed its positive GDP growth in early 2023 at a modest quarterly economic growth pace of 0.3y. Year over year, the GDP slowed to an increase of 0.8% in the first quarter of 2023, compared to the 1.4% year over year in the fourth quarter of 2022. The exports of goods during this period improved, growing by 3.8% quarter on quarter after having a major decline of 4.6% in the year 2022. Also, the country’s imports improved in 2023, recording 3.5% Quarterly after falling by 3.7% in the fourth quarter of 2022 (Biswas, 2023).
Comparative advantage is among the economic theories that can explain the trade and economic journey in the context of South Korea. Comparative advantage theory explains South Korea’s ability to produce its exports at a lower opportunity cost when compared to its trading partners (Hayes, 2023b). For instance, South Korea has a comparative advantage mainly in its industry groups, particularly those producing technology products. This advantage improves the country’s export levels through rapid technological shifts, especially those that tend to emphasize production in the country’s electronic sector. Moreover, South Korea has taken advantage of its low-cost labor to create a high-value-added electronic industry. In this case, South Korea placed more attention on the high-tech industries, which evaluated the nation’s economy as its ability to develop its overall economy and compete in international trade. For instance, Samsung Group, a multinational electronic company, accounts for almost 22.4% of South Korea’s GDP (Yoon, 2023). This means that the company has a powerful influence on the country’s economic development and is a major driving force behind the country’s comparative advantage in its international trade.
In addition, low labor costs, as part of its comparative advantage, provide South Korea with a comparative advantage in terms of lower opportunity costs and higher profit margins (Schauer, 2018). This means that through this advantage, South Korea is able to focus on capital and resources for production and choose those that require lower opportunity costs. This approach has enabled South Korea to achieve higher profit margins in the international market (Murdock, 2020). Moreover, South Korea has a comparative advantage in shipbuilding, becoming among the top players in this industry, especially with its technological advancements that support large shipbuilding capacity and R&D initiatives. For example, South Korea is now able to make high-value-added container ships and gas carrier ships that have provided the country with a competitive edge over other countries in this industry (Schauer, 2018). Overall, South Korea’s comparative advantage in tech, low labor costs, and shipbuilding capabilities have enabled it to engage in trade with its trading partners to their advantage as they can export products that they have a relative advantage in.
Economic growth is one of the major impacts of international trade and globalization in South Korea. For example, with its participation in international trade and being a nation that relies more on exports, South Korea has been able to fuel the growth of its economy, especially with finished products such as ships, electronics, textiles, steel, and automobiles being part of its critical imports in the international trade (Kang et al., 2022). Moreover, with an increase in the number of markets as a result of international trade, South Korea has been able to display its products in these markets, which also enhances the overall process of production and selling of these products in these markets, driving more economic growth in the country (Kang et al., 2022). Also, globalization has improved South Korea’s business environment, fueling more economic growth. For example, South Korea has increased its investment and trade activities through globalization, giving the country access to new markets and technological knowledge. This also includes the new companies being set up in South Korea, such as Linklaters and Paul Hastings LLP, among others, which contribute to the economic growth of South Korea.
International trade and globalization have also enabled South Korea to advance in technology. With international trade and globalization, South Korea has become a powerhouse in science and technology, which has the country among the most advanced digital economies globally. For example, due to international trade and globalization, South Korea launched the Industrial Generic Technology Program, which hugely supported all its industries through technological and financial assistance (Kang et al., 2022). Also, international trade and globalization have improved the various Korean ICT companies, particularly those pursuing AI technologies. For example, Samsung and LG Electronics have been able to invest significantly in AI from more developed countries like China and the United States (Kang et al., 2022). Moreover, with the diffusion of new technology in South Korea, the country has witnessed new ideas, information, and quality products due to the major advancements in its communication technology and the media.
The importation of cheap and low-quality and cheap products in South Korea due to international trade and globalization has negatively impacted its domestic market. For instance, with the American textile companies able to operate in the country, South Korea was forced to close some of its textile industries as many cheap textile products were available in the market and as a result of the increase in competition. In addition, international trade and globalization create a Free Trade Area, which is a big threat to a country’s intellectual property. For example, due to its international trade activities in South Korea, China provided discounts to its e-commerce retailers’ banks in South Korea, which was a major blow to South Korea’s banks.
In addition, the low-cost products supplied in South Korea due to international trade and globalization tend to be despite the human rights violations, especially those associated with production. For instance, being a country that relies on the export markets for the United States’s agricultural products, there have been cases of the U.S. importing low-quality food and farm products such as corn, beef, pork, and fresh fruits, among others. This has also led to cases of unethical production cases that have forced South Korea to implement strict regulations against human rights violations in its local markets.
Imposing Levy tariffs on imported products is among the policies that South Korea should implement in order to mitigate the negative impacts of international trade and globalization on its local markets (Radcliffe, 2023). For example, in order to control the quality of goods imported into the country, South Korea should decide to protect its consumers by imposing a levy on imported food products such as beef from the United States. This will increase the prices of imported goods from the United States and, at the same time, enlarge the domestic market for South Korea’s locally manufactured products, which will also be able to protect the small industries that are being forced out as a result of intense competition by big players in the market (Radcliffe, 2023). Also, as a result of the imposed tariffs, which will result in the high cost of the products, the consumers will choose the relatively costlier domestic products, thereby being able to mitigate the negative impacts of international trade and globalization in South Korea.
Import quotas are another strategic approach that South Korea should strictly embrace in order to protect the negative impacts associated with international trade and globalization (Radcliffe, 2023). For a growing economy such as that of South Korea, quotas will be able to protect its key domestic industries from top global competitors such as China, Russia, and the United States. For instance, through quotas, South Korea will be able to control the number of imports from other countries, thereby safeguarding its vital domestic producers from cheaper imports, which will also protect all the domestic jobs in South Korea (Radcliffe, 2023). Moreover, by following the law of supply and demand, imposing quotas on imports will limit supply, thereby causing an increase in prices for local products in South Korea, which will be key for its economic growth.
Diversifying its trade partners is another way that South Korea could apply in order to reduce its overreliance on a few trading partners in international trade. By diversifying its trade partners, South Korea will also be able to have access to more markets, low-cost intermediate products, and innovative technologies, which will increase the volume of its exports (Radcliffe, 2023). In addition, diversifying the markets will protect South Korea from global trade imbalances and various global shocks as it will options in the markets (Radcliffe, 2023). Moreover, through market diversification, South Korea will be able to reduce the various market losses as it will have gained large market potential due to lower competition in foreign markets from its partners, thereby increasing its overall market share.
In summary, international trade and globalization have been key to South Korea’s economic transformation. This includes the advancement in transport, communication, technology, and innovation and the overall reduction of barriers associated with international trade. Moreover, as a result of international trade and globalization, South Korea has increased the number of its international markets, thereby increasing its trading opportunities, such as access to a larger consumer base. However, despite the various positive impacts of international trade and globalization, South Korea has also experienced some challenges. This includes the importation of cheap products, which tends to affect local businesses. Also, international trade and globalization led to the importation of low-quality and unfit products for human consumption. Nevertheless, South Korea can protect its domestic markets by imposing levies and quotas, which will control the level of imports, thereby protecting the local business from foreign interventions. Also, through the diversification of its trade partners, South Korea will be able to maximize the overall benefits associated with international trade and globalization, improving its economic development to become a top economic power globally.
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