[Square] COVID-19 'Black Swan'... Let's Overcome It Through Exports

Hanjin-hyun, Executive Vice Chairman of the Korea International Trade Association

Looking at the recent rapid spread of the novel coronavirus disease (COVID-19) across the globe, including China, Europe, and the United States, the term "Black Swan" naturally comes to mind. COVID-19 closely fits the definition of a Black Swan as an unforeseen disaster. While past crises such as the foreign exchange crisis and the global financial crisis involved the paralysis of financial functions spreading to the real economy, this crisis originated from a virus, causing paralysis in daily life?such as consumption, travel, dining out, commuting, and trade?all shutting down, thereby impacting the real economy. Demand and supply chains have simultaneously collapsed, jobs have disappeared, and consumption has decreased. Four European automakers, including Volkswagen, halted factory operations for several weeks due to difficulties in procuring parts, and Apple’s first 5th generation (5G) smartphone launch is expected to be delayed by several months from the original September schedule.

Despite these circumstances, our exports are still performing well. In March, export volume increased by more than 10%, while the value decreased by only 0.2%. This is thanks to export companies that have worked tirelessly to develop overseas markets online and launch new products. Although major factories in China in February and in the United States and European Union (EU) in March suspended operations, our companies continued business activities without shutdowns. As a result, Korea has maintained its status as a global supply base and the reputation of "Made in Korea," showing relatively steady export performance. Despite decreased demand from China and the sharp drop in international oil prices, the petroleum products, petrochemical, and auto parts industries increased exports to the United States, EU, and the Association of Southeast Asian Nations (ASEAN). The automobile and general machinery industries, which had experienced parts supply disruptions, normalized domestic factory operations through labor-management agreements and special overtime work.

The government is also putting all its efforts into overcoming the crisis by holding the first and second emergency economic meetings and deciding to provide 100 trillion won in support to companies and financial markets. These measures will help resolve liquidity shortages and difficulties in marketing and logistics faced by export companies, preventing temporary shocks from turning into permanent damage such as job losses and corporate bankruptcies.

However, if the spread of COVID-19 does not subside, export prospects after April are not very bright. If economic recessions fully materialize in advanced countries like the United States and Europe, where confirmed cases are rapidly increasing, it will be difficult to avoid export declines.

That said, we cannot just stand by with folded arms in this situation. Korea, where exports contribute significantly to economic growth, must prepare for the "post-COVID" era ahead of others. Attention should be paid to the fact that the entire world is implementing large-scale economic stimulus measures in preparation for the worst-case scenario. Compared to similar past cases such as Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), economic downturns caused by infectious diseases recovered quickly once the spread was contained. Since the spread of infectious diseases is not a structural problem of the global economy, if social distancing succeeds and the number of confirmed cases decreases, economic activities will become more active than ever to make up for past sluggishness.

Amid the rapidly changing global landscape due to COVID-19, what opportunities can our exports encounter? First, awareness of hygiene and health is expected to increase, leading to growth in exports of medical supplies such as diagnostic kits, clean home appliances, health foods, and hygiene products. The spread of trends like home beauty, home cooking, and home training, where meals, beauty, and exercise are done at home, will greatly expand demand for hair stylers and convenience foods, presenting opportunities for us. Digital equipment and webcams for non-face-to-face communication, driven by the establishment of home offices such as telecommuting, are also promising.

As always, when domestic demand is weak, we have relied on exports to breathe new life into the economy. Since liberation, the Korean economy has repeatedly achieved high growth centered on exports, rising to become the world’s 6th largest exporting country and the 11th largest economy. Now, as the global market has come to a halt due to the spread of COVID-19, it is time to pause and prepare for a leap forward. In anticipation of a rebound in consumer demand after the third quarter due to the effects of global economic stimulus measures, the government should pay more attention and provide support for overseas marketing by export companies, while improving the business environment through regulatory reforms and research and development (R&D) support to strengthen the production base. Those who anticipate market changes, prepare thoroughly, and act swiftly will find opportunities.