(Published : Mar 11, 2022 – 05:30)
The Russian invasion of Ukraine caught almost everyone by surprise. US President Biden had repeatedly warned the world that Russian President Vladimir Putin would move on Ukraine, but few people thought he would launch a massive invasion. Fewer still thought that he would intimate at the possible use of nuclear weapons.
In the two weeks since the full invasion began, Ukrainian forces have mounted fierce resistance and have thwarted Russian attempts to capture Kyiv, the capital, and overthrow the government. Thousands of soldiers and civilians have been injured and killed and 2 million Ukrainians have fled the country; another million are homeless inside the country. Russian attacks have pounded Ukrainian cities, leaving millions more vulnerable.
In the days following the invasion, the US and its European allies announced a series of economic sanctions, growing in intensity with each announcement. Nations in other parts of the world soon joined in announcing tough sanctions. Most recently, the US and other nations have announced bans on oil and gas imports from Russia. European nations, particularly Germany, announced sharp increases in defense spending to counter the Russian threat. The unity of the West has been impressive considering how damaged relations had become during the presidency of Donald Trump.
As governments and their leaders announced sanctions, non-state actors, including many of the largest global corporations, began announcing withdrawals from Russia. The announcements gathered force and, in combination with government-imposed sanctions, have largely shut Russia off from much of the global economy.
So, what does all this mean for South Korea? Like almost everywhere else, the sudden turn of events has caught South Korea by surprise. At first, the country was slow to announce sanctions, but it has since done so, as President Biden noted in his State of the Union address on March 1. The delay has come under criticism in South Korea, but it was short and unlikely to be taken as a sign of lack of commitment.
The bigger problem for South Korea is the weakening commitment to free trade. Sanctions and country boycotts, however justified, restrict free trade. These things have a negligible effect on global trade if used against a few small nations but become a drag if they are used against an ever-growing list of countries. Economic policy that promotes domestic products over imports may have popular appeal but affects trade and growth negatively.
The trade-to-GDP ratio illustrates the potential problem for South Korea. The ratio compares imports, exports, and total trade to GDP, which indicates how dependent on trade a nation is. At the top are small countries such as Luxembourg and Singapore. For these countries, trade is several hundred times GDP. In large countries with large populations, such as Nigeria, Brazil, Pakistan, the US and Japan, trade makes up less than 25 percent of GDP.
And South Korea? With a ratio of 80 percent, the country is highly dependent on trade. The average for nations of the world is 56 percent. Exports make up 43 percent of South Korea’s GDP compared to a world average of 28 percent. Exports make up only 10 percent of US GDP and only about 19 percent of GDP in China and India.
South Korea is not the only large economy with a high dependency on exports. Exports make up 47 percent of GDP in Germany, and around 30 percent in France, Italy, and the UK. The difference between South Korea and the European nations is the size of the market. The European Union is a common market and, though no longer a member, the UK maintains free trade with the EU.
In the end, the fracturing of free trade hurts everybody, but it is especially dangerous for South Korea. It does not have a large domestic market to fall back on, which makes it more difficult to mitigate declines in trade.
The bigger problem is China, the destination for 26 percent of South Korea’s exports. Relations between China and Russia have become closer in recent years, and Russia will turn to China for economic support as sanctions bite. If China agrees, the West could decide to target trade with China in the hope of pressuring it to cut Russia off. In that case, South Korea could come under intense pressure to join, risking amicable trade relations with China.
China could, however, decide that propping up Russia is too risky and turn away from it. That would help South Korea but leave questions about its long-term trade security unanswered. Finding answers to those questions will keep the new president busy for the next five years.