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South Korea Trying To Insulate Itself From US-China Trade War

South Korea Trying To Insulate Itself From US-China Trade War
Despite the temporary 90 day truce, the ongoing trade war between the United States and China has created a sense of uneasiness and uncertainty among Asian nations.  
South Korea is one country that is attempting to undertake measures to avoid it being caught up in the trade war between the two largest economies in the world because the disagreement between China and the US has moved from trade to include wider issues that are affecting their relationship.
South Korea has the potential to suffer significant collateral damage from the trade war because it depends on china for its economy while depending on the US for security issues. The “middle power” in the Korean peninsula - South Korea, has not been able to completely accommodate both the US and China’s demands as the two giants fight out over domination of the region.
Based on learning from history, both the government and the private sector is has drawn up and implementing new strategies to avoid the risks.
The trade war between the China and the US has hastened the pace of exit from China and is accelerating the speed of their presence in the Chinese economy.
Rising wages and political uncertainties had already made South Korean firms to contemplate relocation of their production units out of China. According to a white paper by the Korea Chamber of Commerce in China, there has been a slowdown of the investment by South Korean manufacturers in China during the last few years because of enhanced labour costs.
Last year, its China network equipment manufacturing unit in Shenzhen was closed down by the largest smartphone maker of the world and the largest South Korean conglomerate Samsung Electronics. The company moved that the production unit to Vietnam instead.
And now, according to experts, the resolve of the South Korean companies to exit china has been emboldened by the US-China trade war and look out for o the markets for investments.
According to data compiled by the Export-Import Bank of Korea, one of the Asian economies that is benefiting from this is Vietnam where $1.97 billion has been invested by South Korean companies in the first six months of the current year which is more than South Korean investments in China at $1.60 billion during the same period which is a first for China and South Korea.
“The change in the price of raw materials – due to the US-China trade war – is working as a burden for South Korean firms in China, making them shift their production base to Southeast Asia, including Vietnam,” said Kim Ill-san, chief representative of the Korea International Trade Association in Vietnam. .
“China’s increased labour costs would also be another reason for the decision. The [monthly] labour cost of manufacturing workers in China, on average, is approaching US$800 per person, while in Southeast Asia it marks about US$250-400.”
“Southeast Asia, so far, has largely been spared from Trump’s tariff wrath … [but] Korean companies might also take another look at their own home market now that a revised KORUS agreement is in place. Higher costs aside, producing at home can at least give Korean companies US market access certainty,” Sean King, vice-president of political strategy firm Park Strategies, said.

Christopher J. Mitchell

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