IMF: ‘S. Korea could be the biggest victim of US-China de-risking’

South Korea's economy, which is closely intertwined with China's, could be particularly hard hit if the U.S.-led de-risking of dependence on China in global supply chains, investment, and other sectors of the economy takes hold, according to a new report. Estimates of GDP losses due to de-risking suggest that South Korea's GDP could shrink by nearly 4 percent, more than double the world’s and OECD’s GDP losses of around 1 – 2 percent.

The International Monetary Fund released the observation in its Asia-Pacific Regional Economic Outlook report on Thursday, noting that de-risking could result in significant losses to Asian countries' GDP and the global economy as a whole. To estimate the amount of GDP lost to de-risking, the IMF assumed supply chain disconnection through non-tariff barriers.

According to the report, if China and the 38 members of the OECD split into two global blocs and erected non-tariff barriers, such as ‘friendshoring,’ against each other, China's GDP would fall by 6.8 percent. Also, the global GDP is estimated to shrink by 1.8 percent and the GDP of the 38 OECD members by 1.5 percent, while South Korea's GDP could decline by nearly 4 percent. Japan and the European Union are projected to lose around 1 percent, and the U.S. less than 1 percent.

When reshoring is intensified without splitting global blocs, the GDP losses are projected to be 6.9 percent for China, 4.5 percent for the world, and around 5 - 6 percent for the OECD. In comparison, South Korea would lose as much as 10.2 percent, the most significant loss among the OECD members.


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