Chinese trade sanctions on South Korea are hitting some areas of the country’s industry. Hyundai trade with China has been particularly affected. These sanctions were placed on the country because of the deployment of a defense system designed to protect the county from potential North Korean missile attacks.
South Korea may assist companies that have been hit by Chinese trade sanctions. This assistance will begin with the provision of cheap loans and deferment of corporate taxes for such firms. This may not be enough to adequately compensate the losses of companies such as Hyundai, nor guarantee their future.
China has boycotted imports from South Korea. This has particularly affected the auto industry and certain sectors of tourism. China was annoyed by the deployment of a defense shield by the USA to protect the country from North Korea attack. Thaad is the Terminal High Altitude Area Defense system that was installed earlier this year as a protection against North Korea’s short-range missiles.
China claims to have taken this action because the radar system, which is part of Thaad, could be used to spy on it. As a response to the deployment, China imposed boycotts on all goods exported from South Korean to China. The South Korean government’s corporate relief plan is intended to cover losses due to these restrictions. South Korean firms operating in China, including duty-frees, can defer up to 100% of their corporate tax and VAR for up to nine months.
One immediate result of the Thaad installation was a 29% drop in sales of Hyundai cars in China. This loss to Hyundai in China, which is the world’s largest automobile consumer, was significant to the company. Chinese visitors to South Korea dropped by 50% January – July this year. Chinese tourists represent half of all visitors to the country. The cost of this to the South Korean economy is a multi-billion dollar loss.
The total loss of business to South Korea is estimated by the Korean Tourism Organization to be $5.1 billion. The country is a major trade partner with the US. However, the US has a trade deficit with South Korea that amounted to $17 billion in 2016. Services, between the two countries, on the other hand, amount to a surplus to the US.
For that reason, many are wondering if the USA will help South Korea out, other than installing a missile defense system that is of much benefit to the US as it is to South Korea. Such an action by China could threaten markets throughout Asia. Hyundai in particular could be at threat. Will the US help to stabilize South Korean markets? Will or will not politics come before world economics? We will keep you posted on developments.
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