The semiconductor industry (Image courtesy of Yonhap)
SEJONG, South Korea, March 14 (Korea Bizwire) — South Korea’s economy is increasingly influenced by domestic factors rather than global conditions, signaling a shift toward self-driven growth and stability, according to a new report from the Korea Institute for International Economic Policy (KIEP).
The study, released on Thursday by KIEP’s International Macroeconomics and Finance Division, examined recent global economic fluctuations and their implications in an era of economic fragmentation.
Researchers found that since the COVID-19 pandemic, the impact of global economic factors on South Korea has diminished, while the country’s unique economic structure has played a more significant role in shaping growth trends.
“This suggests that South Korea’s sensitivity to global economic shocks has weakened, and domestic economic stability has become more central to its growth trajectory,” the report stated.
U.S.-China Trade Tensions and Sectoral Impact
The study also analyzed the effects of increasing U.S. tariffs on Chinese imports, revealing that trade tensions between the world’s two largest economies have varied impacts across different industries.
The findings indicate that efforts by the U.S. to restructure global supply chains have generally resulted in welfare losses for many countries, including the U.S. itself. While South Korea has experienced a decline in economic welfare, the impact has been less severe compared to the U.S. and China.
Under a scenario where all countries and industries face a 5-percentage-point increase in tariffs, South Korea’s total welfare effect is estimated at -0.093%. This is significantly lower than the estimated losses for the U.S. (-0.845%) and China (-0.345%).
Sectoral Winners and the Need for Targeted Policies
The study highlights that certain South Korean industries, particularly those in medical and office supplies, electronics, telecommunications equipment, and automobiles, could actually benefit from changing trade dynamics. These sectors are expected to perform relatively well amid global supply chain disruptions.
“Our analysis suggests that these industries are positioned to withstand supply chain shocks better than others, giving them a competitive edge in a fragmented global economy,” the researchers noted.
Given the varying impact of trade tensions across different industries, the report recommends that South Korea implement industry-specific economic policies. Additionally, as prolonged U.S.-China tensions and widespread supply chain disruptions become more likely, the study underscores the need for long-term strategies to prepare for the associated costs and challenges.
“In crafting economic policy, South Korea must account for both reduced sensitivity to global shocks and the evolving risks associated with supply chain shifts,” KIEP stated. “A tailored, long-term strategy will be critical to maintaining economic resilience.”
M. H. Lee (mhlee@koreabizwire.com)
