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Korea, Singapore regarded as biggest victims
By Park Jae-hyuk
The four "Asian Tigers," which previously benefited the most from free trade and globalization, are going through a turbulent period as their economies are reeling from an escalating U.S.-China trade war and several other threats to the global free trade order, according to economic experts, Tuesday.
The Asian Tigers refer to Korea, Taiwan, Hong Kong and Singapore, which maintained exceptionally high growth rates in the last few decades of the 20th century.
Economists said Korea and Singapore have suffered the most from the recent trade dispute, while Taiwan has seemingly overcome the difficulty by capitalizing on it.
"It doesn't seem like all four Tigers are suffering equally from the U.S.-China trade war," said Park Chong-hoon, head of economic research at Standard Chartered (SC) Bank Korea. "Korea and Singapore are suffering the worst, because of their high dependency on trade."
The economist said Korea, which relies heavily on semiconductor exports, has been one of the countries hit hardest by the trade war, given that sluggish exports from China to the United States has slowed the shipment of intermediary goods to China.
Taiwan, on the other hand, has benefited from the relocation of production facilities from the mainland, the economist said.
Regarding Hong Kong, Park said it is hard to assess the effects of the trade war, due to the political turmoil in the city.
Economic experts in other countries shared these views.
Goldman Sachs economist Andrew Tilton said in his recent report that Taiwan may be able to escape the consequences of the trade war, as they can be offset by diversion of U.S. imports from China to Taiwan as well as the frontloading in China exports.
Given this, the economist trimmed the investment bank's 2019 growth forecast for Taiwan only marginally ― from 2.4 percent to 2.3 percent ― while making relatively bigger adjustments to the other three Tigers.
According to the Goldman Sachs report, Hong Kong and Singapore faced huge changes.
The bank cut its growth outlook for Hong Kong to 0.2 percent from 1.5 percent, citing the ongoing political protests and the weak global trade environment. The growth forecast for Singapore was dropped to 0.4 percent from 1.1 percent, due to the slowdown in external sectors.
Goldman Sachs cut its growth forecast for Korea to 1.9 percent from 2.2 percent, citing the sharp reduction in the regulatory maximum work hours, the ongoing dispute with Japan and the U.S.-China trade feud.
The change in Goldman Sachs' growth forecast for Korea was smaller than that for Singapore, but some experts said the situation in Korea is even "more worrying."
"The trade war involving the U.S. and China adversely affects the four Tigers, but Korea is more dependent on trade with the U.S., China and Japan than the other Tigers," said Sohn Sung-won, professor of finance and economics at Loyola Marymount University.
Beijing-based think tank Anbound researchers Chen Gong and Song Junjie wrote in The Diplomat magazine: "The friction between the U.S. and China not only brings about a slowdown in Korean exports, but also made it necessary for companies to choose sides, either siding with China or the United States. This means that the companies have to abandon doing business with the one side should they choose to side with the other."
Amid the intensifying U.S.-China trade feud, exports of Korea's ICT products decreased by 22.4 percent year-on-year in June, which in turn marked the eighth consecutive month of year-on-year decline.
Following the decrease, Samsung Electronics and SK hynix saw a respective 69.91 percent and 83.93 percent drop in their first-half operating profits.
The Anbound researchers mentioned the trade battle between Seoul and Tokyo over semiconductor materials as well, saying this was another unfavorable factor for Korea, whose exports are dominated by high-tech electronics.
The Goldman economist showed concern about residual risks from an additional tightening of Japan's export controls that could lead to longer and potentially larger disruptions in material supplies.
SC Bank Korea's Park said Korea and Singapore will be victims of the Korea-Japan dispute, while Taiwan will benefit from its possible export of hydrogen fluoride, a semiconductor material subject to Japan's export controls.
Against this backdrop, all the economists suggested that the Asian Tigers consider several measures to overcome difficulties related to the global slowdown and trade tensions.
"The four countries should try to strengthen their domestic economies by improving domestic consumption and productivity," Sohn said. "Also, they should further diversify export destinations."
Mauro F. Guillen, director of the Lauder Institute at the University of Pennsylvania's Wharton School, said: "There are ways to overcome the problem: diversify the export markets, become more cost competitive, and devalue the currency, which is dangerous. In addition, specific companies ― like the Korean chaebol ― can invest abroad in plants and facilities so as to bypass the tariffs."
