Fletcher in the News

Dean Bhaskar Chakravorti Comments on South Korea's Services Sector

Bhaskar Chakravorti is a Senior Associate Dean at The Fletcher School of Law and Diplomacy, Tufts University.

Why is South Korea Bellyaching About the Yen when it’s Running a $6 Billion Trade Surplus?

As a competitor to Japan in high-tech exports, Korea has worried for a while that Japan’s aggressive yen-weakening would undercut it. In Markit Economics’ manufacturing survey, the purchasing managers’ index (PMI), published today, Korean exporters said “the weakness of the yen was improving the competitiveness of Japanese rival manufacturers” (pdf). And over the weekend, Hyun Oh-seok, South Korea’s finance minister and deputy prime minister, railed against Abenomics to the Financial Times (paywall). “We need some kind of co-ordinated efforts to prevent these kinds of unintended side-effects from [Japan’s new] monetary policy,” Hyun said…

…But the weaker yen also made raw materials cheaper than they’ve been since July 2005. And that enabled Korean companies to slash their prices as well, said Markit. Plus, export orders still grew, though the rate of growth slowed in May.

And then there’s May trade data: the trade surplus surged to $6.03 billion in May. That’s the biggest gap between exports and imports since October 2010, and up from $2.45 billion in April. Exports to the US surged 21.6% on the same months in 2012, while exports to China, its biggest trading partner, were up 16.6%...

…What gives?

For one thing, Korea’s reliance on exports is coming at the expense of its service sector, as Bhaskar Chakravorti, executive director for the Institute for Business in the Global Context at [The Fletcher School at] Tufts University, explains.

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