See More on Facebook

Analysis, Economics

US risks Korean economy

Bae Hyun-jung looks at US-related hurdles weighing upon South Korea’s economy this year.


Written by

Updated: February 28, 2018

A global automaker’s move that could potentially lead to a withdrawal of business here, key rates pressures, and increasing trade pressure from the United States — these are the three major US-related hurdles weighing upon South Korea’s economy this year.

In the industrial sector, GM Korea’s decision to shut down its Gunsan plant after 22 years of operation is increasingly imposing strain upon the local economy and Seoul’s government.

Macroscopically, Asia’s fourth-largest economy faces the possibility of foreign capital leak following the imminent US key interest rate hike, as well as rising challenges in exports due to the mounting trade pressure from the US administration.

Of them, the most tangible risk of the ongoing brawl over the US carmaker’s plausible withdrawal from the local market, an event likely to devastate the southwestern city and burden policymakers ahead of the June local elections.

GM, which announced its tentative plan to close its underutilized Gunsan factory by May, recorded some 2 trillion won ($1.9 billion) in accumulated losses in 2014-2016.

In return of a $2.7 billion debt-for-equity swap and $2.8 billion in investment over the next 10 years, the company requested financial aid, suggesting that the Korean government’s decision on the matter may decide the fate of the three remaining plants.

The proposal put Seoul in a fix as the injection of public funds into the US carmaker — considered indispensable to relieve the 2,000 employees and some 3,000 subcontractors from immediate fallout — may turn out futile, should the company eventually pull out of the market entirely.

Another disincentive for the financial aid scenario is the prevailing suspicion that GM’s head office has been pocketing huge profits by underestimating its Korean office’s sales performance.

“GM (Global) should be held responsible for profiteering at the sacrifice of GM Korea,“ Rep. Ji Sang-wuk of the conservative minority Bareun Future Party said Tuesday.

The company recorded $12.8 billion in earnings before interest and tax last year and was preparing to pay out $11,750 in bonuses to employees, according to the lawmaker.

While industries and financial officials grappled over the GM dilemma, Seoul’s central bank faced challenges concerning its policy rates.

The Bank of Korea on Tuesday froze the benchmark key interest rate at 1.5 percent for two consecutive months, maintaining a wait-and-see stance amid a slow growth momentum.

“The price increase pressure is likely to remain steady for a while, so we decided to free the key rate at its current level,” BOK Gov. Lee Ju-yeol told reporters.

The rate freeze is expected to weigh down upon Seoul’s financial markets as the US Federal Reserve is widely expected to raise its key rate in March, consequently reversing the two countries’ interest rate gap for the first time in 10 years.

This key rate situation led to dim speculations that global capital may slip out of developing economies and flock to the higher-rate markets in the US, as previously shown in the wake of the Fed‘s rate hiking move back in 2013 — the so-called Taper Tantrum.

“Cases of foreign capital outflow have mostly occurred in exceptional occasions,” the BOK chief added, in an effort to dismiss such concerns.

“The interest rate gap alone is insufficient to trigger a mass capital leak from a nation’s economy.”

A key factor which led Seoul‘s central bank to lean towards the status quo despite risks is the snowballing amount of the nation’s household debts, which totaled at a record 1.45 quadrillion won as of the end of last year.

Adding further to the Korean economy, especially its steel exports, is the mounting trade protectionist gestures from the US administration.

US President Donald Trump on Monday said that he would increase tariffs up to 24 percent for all steel imports if necessary to revive the US domestic industry.

“I want to bring the steel industry back into our country,” Trump said at a meeting with state governors at the White House. “If that takes tariffs, let them take tariffs. Maybe it‘ll cost a little bit more, but we’ll have jobs. Let it take tariffs.”

The US president’s remarks followed the Commerce Department‘s earlier recommendation that steel imports posed a threat to national security and thus qualified for special measures such as higher tariffs.

Though Trump’s plan steered clear of the most severe scenario — of levying a maximum tariff of 53 percent on 12 designated countries including South Korea — it nevertheless is expected to place an unprecedented burden upon steelmakers here.

As part of President Trump‘s trade protectionist stance, Washington earlier slapped extra tariffs on washing machines and solar cell panels imported from South Korean and other manufacturers.

(This article was written by Bae Hyun-jung and originally appeared in the Korea Herald)



Enjoyed this story? Share it.


ANN Members
About the Author: Asia News Network is a regional media alliance comprising 24 media entities.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Analysis, Economics

Aung San Suu Kyi wants foreign investment amid international pressure

Myanmar’s State Counsellor Aung San Suu Kyi wants the world to see her country as a business and investment opportunity waiting to be seized. Suu Kyi made the pitch that Myanmar is “the last frontier of Southeast Asia” in a keynote speech at the Asean Business and Investment Summit, on the sidelines of the main Asean Summit, which will be held from Monday to Thursday in Singapore. Suu Kyi acknowledged that Myanmar very behind in this respect, saying “this may sound old hat to you, but it’s very very new to us. We want you to know we are catching up with the rest of the world.” There is certainly a long way for Myanmar to go. Just weeks ago, in late October, the World Bank’s Doing Business 2019 report, an index that evaluates “the regulations that enha


By Quinn Libson
November 14, 2018

Analysis, Economics

President Xi emphasizes role of Hong Kong, Macau

Both Hong Kong and Macao were told to integrate with nation’s overall development. President Xi Jinping underlined on Monday the unique and irreplaceable role of the Hong Kong and Macao special administrative regions for China’s reform and opening-up in the new era. He also called on the two regions to better integrate themselves with the nation’s overall development. Xi’s remarks came as he met with a delegation of about 210 representatives from the two SARs who were in Beijing to celebrate the 40th anniversary of reform and opening-up. The position and role of Hong Kong and Macao will only be strengthened rather than weakened, Xi said. The two regions should continue to play a leading role and enable more capital, technology and talent to take part in the country’s high-quality development and in the new round of high-level opening-up, he said. People of the two regions should continu


By China Daily
November 13, 2018

Analysis, Economics

Report of NK’s ‘undisclosed’ missile bases not new, S. Korea says

South Korea’s presidential office on Tuesday played down a new report on North Korea’s “undisclosed” missile sites. South Korea’s government said that it’s going too far to call the North’s continued activity a “great deception” given that it has no specific agreement to dismantle or disclose the facilities mentioned in the report issued by Beyond Parallel, a group at the Center for Strategic and International Studies. The group said it has located 13 out of an estimated 20 missile operating bases undeclared by the secretive communist regime. “The dispersed deployment of these bases and distinctive tactics employed by ballistic missile units are combined with decades of extensive camouflage, concealment and deception practices to maximize the survival of its missile units from pre-emptive strikes and during wartime operations,” the report


By The Korea Herald
November 13, 2018

Analysis, Economics

‘Forced repatriation’ to pose security risk

International crisis warns that forced repatriation of Rohingya refugees could pose serious security risks. The International Crisis Group has warned of serious security risks of “forced repatriation” of the Rohingya, just as Myanmar and Bangladesh prepare for the November 15 return of the refugees sheltered in Bangladesh. In a statement, the Brussels-based global advocacy body said Rohingyas strongly opposed the repatriation move and would do whatever they can to resist it. “This [forced repatriation] will increase tension in the camps and could lead to confrontations between refugees and Bangladesh security forces and greatly complicate humanitarian operations. “A botched repatriation attempt could potentially set back peace and development efforts by years,” said the statement released yesterday. It comes two weeks after Bangladesh and Myanmar agreed to begin the repatriation


By Daily Star
November 13, 2018

Analysis, Economics

No further dismantlement at NK missile site

North Korea’s key missile site has not been dismantled further since August, a US website monitoring the regime said Thursday. North Korea has pledged to dismantle a missile engine testing site and a launch pad in Dongchang-ri as part of its stated commitment to denuclearize the Korean Peninsula. 38 North said satellite imagery from Oct. 31 indicates there has been no additional dismantlement activity since August. “Components that were previously removed remain stacked on the ground at both locations,” 38 North said in an article posted on its website. Meanwhile, the imagery shows new equipment, possibly for ventilation,


By The Korea Herald
November 9, 2018

Analysis, Economics

Thailand’s KBank to launch e-wallet, invests $50 million US in Grab Taxi

Grab on Thursday announced a partnership with Thailand’s Kasikornbank to launch mobile payment application GrabPay by KBank. The mobile wallet, which is slated to be launched as soon as early 2019, will allow Grab customers to pay for transport and delivery services, transfer funds, purchase products and services online, and make QR-code payments in restaurants and shops across Thailand. Through Thailand’s national e-payments scheme called PromptPay, all three million QR-enabled merchants in the country will be able to accept GrabPay by KBank.


By The Straits Times
November 9, 2018