Amid strengthening U.S.-led de-risking with China, analysis suggests that Korea, which is heavily dependent on de-risking between the U.S. and other Western members, and China, could suffer relatively significant damage.
According to the International Monetary Fund’s analysis of the regional economic outlook report using its own model on the 22nd, Korea’s GDP is estimated to shrink by nearly 4% in the so-called “friend-shoring” situation where OECD member countries and China reorganize their supply chains around alliances.
Friend-shoring assumes an environment in which OECD member countries and China strengthen non-tariff trade barriers to reduce their dependence on each other, but do not restrict trade with other countries.
In this case, China’s GDP is estimated to shrink by 6.8% in the long run. In addition, the global economy’s GDP decline was around 1.8%, and the GDP decline in the rest of the countries except China and OECD member countries was around 0.2%.
Analysts say that Korea is less damaged than China at about 4%, but the damage is greater than that of other economies as it relies heavily on China.
In addition, Korea’s GDP decline rate is greater than that of China in a “reshoring” situation in which China and OECD member countries strengthen non-tariff trade barriers not only against the other party but also against all countries.
The reshoring situation assumes that OECD member countries’ dependence on foreign purchases is reduced by 3 percentage points through strengthening non-tariff trade barriers.
In this case, China’s GDP decreases by 6.9%, while Korea’s GDP decreases by about 10%. The GDP decline rate in Southeast Asia (excluding Indonesia) as well as Korea was relatively large at 9.1%. On the other hand, the U.S. GDP decline rate, which has a large domestic market, is estimated to be less than 4%.
This is because in the reshoring situation, not only is it highly related to China and OECD member countries, but also to open economy countries, where trade, such as exports, accounts for a higher proportion of GDP than domestic demand, is more damaging.
Currently, U.S.-led export controls on high-tech products such as semiconductors and secondary batteries are being implemented, and China is confronting export controls such as gallium, germanium, and recently graphite, and delisking is in full swing.
In addition, the situation of “friend-shoring” and “reshoring” assumed by the IMF report is currently ongoing, given that the U.S. is sucking not only reshoring of its own companies but also foreign companies into the U.S. mainland through the Inflation Reduction Act (IRA) and the Semiconductor Act (CHIPS Act).