Mid-sized companies 86.3% "Concern over US vs China COVID-19 blame trade dispute escalation"

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[Asia Economy Reporter Moon Hyewon] The majority of domestic export small and medium-sized enterprises (SMEs) expect the trade dispute between the United States and China to intensify due to the blame game over the novel coronavirus disease (COVID-19) situation.

According to the results of the "Survey on the Impact of the US-China Trade Dispute Expansion Due to COVID-19 on SMEs," conducted by the Korea Federation of SMEs on the 8th targeting 300 export SMEs nationwide, 86.3% responded that "the trade dispute will expand."

Regarding the expected duration if the dispute expands, 45.0% answered "within 6 months to 1 year," which was the highest, followed by "1 to 3 years (31.7%)" and "within 6 months (15.7%)."

On the impact of the US-China trade dispute on SMEs, half of the SMEs (51.3%) responded that it would have a "negative impact," followed by "no impact (47.0%)" and "positive (1.7%)."

Among the 154 companies that expected a negative impact (multiple responses allowed), 71.4% anticipated a "decrease in exports due to the global economic slowdown." This was followed by "increased volatility due to the US-China currency war (38.3%)," "decrease in exports to China due to contraction of the Chinese market (34.4%)," and "reduced operating rates of production bases in China and pressure to relocate to other countries (9.7%)."

As a response strategy, "no separate countermeasures (42.0%)" was the most common, indicating relative vulnerability in managing external risks. This was followed by "diversification of clients and export markets (32.7%)," "expansion of R&D investment to strengthen competitiveness (17.3%)," "strengthening foreign exchange risk management such as subscribing to foreign exchange fluctuation insurance (17.0%)," and "relocation of production bases (4.7%)."

Regarding key government tasks to overcome the US-China dispute risk (multiple responses allowed), "strengthening the provision of overseas market information for export diversification (41.7%)" was chosen most frequently, followed by "strengthening overseas marketing support (37.0%)," "stabilizing the foreign exchange market including responses to exchange rate fluctuations (32.3%)," "strengthening R&D support to enhance product competitiveness (28.3%)," "establishing customized strategies according to global supply chain restructuring (16.3%)," and "mid- to long-term support for relocating production bases domestically and abroad (10.7%)."

Choo Moon-gap, Head of the Economic Policy Division at the Korea Federation of SMEs, said, "As the blame game over COVID-19 responsibility between the US and China and the passage of the Hong Kong Security Law have intensified conflicts between the two countries, the possibility of expanding trade disputes is high. The expansion of the trade dispute between the US and China, Korea's largest trading partners, is the worst-case scenario for export SMEs already hit by COVID-19. The government must establish and support tailored strategies for SMEs according to different scenarios."