THAAD Impact on Korean Industry

On March 20, the Korea Development Bank (KDB) issued a report regarding the potential impacts of THAAD deployment and deteriorating Korea-China relations on Korean industry.

Originally published in the April 6 KBLA Korea Risk Advisory.


According to the KDB, China implemented a number of pressure diplomacy measures towards Korea after the joint US/ROK THAAD deployment announcement in July 2016. In 2016, roughly 25% of Korean exports went to China, leaving Korea highly dependent on China. The cosmetics, duty free retail, and tourism industries are most vulnerable to retaliatory measures, while Korean capital goods, which are more difficult to replace with domestic Chinese production, are not expected to suffer an impact. Korean duty free stores, tourism, and manufacturing industries are forecasted to lose 20 billion USD in 2017, in the event that Korea-China relations do not improve.

According to KDB, China's retaliatory measures against Korea have consistently increased over the past several months.

Data KDB, Table and Translation KBLA

The KDB explained two future Korea-China relation scenarios, and three levels of impact, for Korean industries' sales and exports.

Data KDB, Table and Translation KBLA

The cosmetics, duty free, and tourism industries are expected to be most affected by China's retaliation measures.

Data KDB, Table and Translation KBLA

The textile and petrochemical industries export heavily to China, but the impact of China's retaliatory measures is forecasted to be limited.

Data KDB, Table and Translation KBLA

The semiconductor, display, shipbuilding, and construction industries are not vulnerable to Chinese retaliation. Goods from these industries cannot be substituted by domestic Chinese production or orders from China are too small already.

Data KDB, Table and Translation KBLA

If the current status quo in Korea-China relations persists in 2017, Korean duty free and tourism industry sales are expected to decrease by 50%.

Data KDB, Table and Translation KBLA

  

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