Trade Deficit with Japan Hits Five-Yr High

As the trade imbalance with Japan has worsened, the trade deficit with Japan is expected to reach the highest-ever point since the 1997 economic crisis.

The Korea International Trade Association (KITA) said yesterday that trade deficit with Japan from January to August amounted to 8.99 billion dollars, up by 40.8% from 6.36 billion dollars for the corresponding period last year.

This shortfall is the biggest in five years since Korea recorded 9.19 billion dollars in trade deficit with Japan during the same period in 1997.

According to KITA, if this trends holds, the trade deficit is expected to reach 13 billion to 13.5 billion dollars by the end of this year, nearing or exceeding the 13.1 billion dollar annual deficit set in 1997.

The ever-widening trade deficit with Japan is attributed to the sluggish export to Japan due to the economic slowdown in Japan.

Import from Japan for the first eight months this year increased 4.4% year on year to 18.63 billion dollars while export to Japan decreased 15.3% year on year to 9.72 billion dollars. Among others, export of steel, computers, semiconductors decreased by 35%, 26.2% and 15.3% respectively compared to the same period of a year prior.

Another reason behind the trade deficit is the increase of China`s export to Japan. China`s export to Japan has risen by 10% on an annual average since 1999. Its core export items are electronics, machinery and clothing.

An official of KITA said that given that Japan`s import declined 5.1% for the first eight months of this year, Korea`s export to Japan decreased further. He added that as Korea is heavily dependant on import of capital goods from Japan, if the domestic economy picks up, the trade deficit would further worsen.

Mi-Kyung Jung mickey@donga.com