Authors: Leong Ke Xin, Cherly, Lorraine Lee Yi Ying
Research Head: Jade Yong Yu Jia
Editors: Sasthaa Gingee Babu (Uday)
Before the start of the Covid-19 pandemic, South Korea’s exports-reliant economy was already in a clear slowdown in 2019 due to the trade dispute with Japan and the US-China trade war. While the clashes in trade have yet to be settled, the pandemic has emerged to add hail to snow in the Korean economy (Chiang, 2020). In April 2020, South Korea saw its largest single month drop in exports since the Global Financial Crisis in 2009. However, South Korea saw a rebound in exports mainly due to the growing demand for semiconductors and IT related products. K-Quarantine also helped to boost exports in several sectors. With an increasing global demand for IT-related products and greater support for new growth areas like AI-related chips, South Korea’s export is likely to see healthy and sustainable growth.
How Covid-19 impacted South Korea’s exports
South Korea’s exports were badly hit in the first quarter of 2020 with global lockdowns to prevent the spread of COVID 19. In April 2020, South Korea experienced the sharpest decline in their exports since the Global Financial Crisis as their exports fell by 24.3% in a single month (Stangarone, T., 2021). In the second quarter of 2020, their exports of goods also declined by 11.5% and services declined by 22.1% (Stangarone, T., 2021).
Fig 1. Total Monthly Exports in 2019 and 2020
However, South Korea’s exports quickly picked up in the second half of 2020 as their exports to the United States rebounded by 10.1% and its exports to China remained relatively stable throughout the year (Stangarone, T., 2021). This was mainly due to the strong global demand for memory chips and car sales as the decline in their exports in 2020 was cushioned by the latest recovery in the outbound shipments of their memory chips (Kang, 2021).
South Korea’s exports remain unscathed despite the pandemic
South Korea’s exports deteriorated when the pandemic started to spread beyond China but it quickly picked up as South Korea was well prepared to meet the global demand to cope with the pandemic (Stangarone, T., 2021). For instance, the South Korean Government implemented K-Quarantine which aims to help South Korea secure markets in the global health industry and export its COVID-19 management strategy which aims to trace the contacts of the infected patients through the use of technology, testing individuals on a large scale and isolating the infected patients (Schwak, J.,2021). K Quarantine has proven to be effective as the exports of K Quarantine goods have been booming as a result of an increasing demand for coronavirus tests, face masks and ventilators. The export of personal protective equipment and disinfectant products also surged. Shipments of cloth face masks without filters expanded by 663 percent, rubber surgical gloves by 2,797 percent, and hand sanitizer by 3,700 percent (Schwak, 2021). As such, K Quarantine has helped South Korea to minimize the impact of the pandemic on its exports as South Korea continues to export its healthcare management products to help countries deal with the pandemic.
Additionally, South Korea was also well positioned to take other areas of growth in 2020. South Korea’s exports is also expected to surpass its pre pandemic peak due to the strong overseas demand for its products ranging from its electric cars to lithium batteries (Kim, S. ,2021. In the second half of 2020, South Korea’s exports of electric vehicles expanded by 65.9 percent, while exports of the lithium ion batteries needed to power electric vehicles grew by 4.3 percent (Stangarone, T., 2021) . As South Korea is able to take advantage of growth in the electric vehicle market, its exports have remained unscathed from the pandemic.
Thus, the success of the quarantine model and the ability of South Korea to take advantage of new areas of growth such as the electric vehicle industry has definitely helped South Korea to cushion the impact of COVID 19 on its exports.
Will South Korea exports see a continuous improvement?
As the world slowly recovers from the coronavirus pandemic, South Korea can expect to see a continuous improvement in their exports as global demand starts to pick up. The Korea Trade-Investment Promotion Agency (KOTRA) expects to see a greater demand for exporting by products related to new growth areas and virtual activities as leading countries start to maintain eco-friendly policies, and start expanding their infrastructure in public healthcare (Cho, 2020). With the virtual economy becoming the new normal, the global demand for electronic products from Korea is likely to increase as well (Cho, 2020).
South Korea is also well positioned as a global industry leader in the AI and memory chip industry. It is home to the two largest memory chip makers in the world, Samsung Electronics and SK Hynix, which jointly account for around 70% of the global DRAM and NAND memory chips (“Samsung expands,” 2020). The South Korean Government has also been showing strong support for this industry as they announced plans to invest about 1 trillion won ($870 million) on AI chips commercialisation and production which accounts for 20% of all semiconductor demand and could potentially generate $67 billion in revenue by 2025 (Liao, 2020). With strong government support and a robust and competitive semiconductor industry in South Korea, it puts the country in the forefront in developing and producing more advanced semiconductor technologies for the global economy.
Thus, we are confident that there will be continuous improvement in South Korea’s exports as it is a well-established industry leader in the AI and memory chip industry. We can expect to see a growing demand for these products given that the virtual economy is starting to be a new normal. Alongside strong government support, we are confident that South Korea will be able to continue to secure its position as an industry leader in the AI chips industry, and benefit from a healthy and sustainable growth in the exports of these chips to meet the increasing global demand.
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