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By Jhoo Dong-chan
The escalating U.S.-China trade tit-for-tat will adversely affect Korean exporters who ship significant amounts of industrial parts and intermediary goods to the world's second-largest economy, analysts said Sunday.
Many Chinese firms import parts and intermediary products from Korea to manufacture finished goods and export them to the United States and other countries. If China's shipments to the United States decline because of the latter's tariffs, it will also negatively affect Korean firms.
In addition, Korea's small- and medium-sized enterprises that outsource high-tech parts production to China could take a hit, they said.
According to the Korea International Trade Association (KITA) Sunday, the Trump administration's proposed tariffs take aim at many of the industries highlighted in China's "Made in China 2025" plan.
The plan identified 10 industries China wants to become globally competitive by 2025, and globally dominant during this century. They are robotics, new energy vehicles, biotechnology, aerospace, high-end shipping, advanced rail equipment, electric power equipment, new materials and new generation information systems.
Trump proposed 25 percent tariffs on $50 billion worth of imports from these industries. The proposed tariffs go into effect on July 6.
In return, China announced Friday it will impose retaliatory tariffs on $34 billion worth of U.S. goods, including agricultural products.
If the trade war between the two intensifies, it will hit Korea extra hard, KITA said.
"If tariffs rise by 10 percent between such major economic blocs as the U.S., EU and China due to their prolonged trade war, global trade volume will decline by 6 percent," the trade agency said.
"Korea will also suffer a 6.4 percent decline in its total export volume."
The Hyundai Research Institute (HRI) echoed this view.
"If China's export volume to the U.S. declines annually by 10 percent due to the scheduled tariff plan, Korea's exports to China will be reduced by $28.2 billion a year," the HRI said.
Industry observers say the measure will discourage the drive for the Fourth Industry Revolution as well.
"The proposed tariffs on Chinese imports target industries related to future industries," a Nomura Securities analyst said. "It will be a direct hit against Korean machine parts suppliers in China."
Sogang University Graduate School of International Studies professor Heo Yoon said the tensions could also negatively affect the nation's job market.
"China and the U.S. are the nation's top two export countries. The decision will encourage Korean firms to outsource their production into overseas markets," he said.
"There is still room for them to talk. In the meantime, the government should prepare a buffer measure."
Following the U.S. announcement, Friday, the Dow Jones was down 1 percent during the session while the S&P 500 index slid 0.1 percent and the Nasdaq composite 0.2 percent.
