South Korea’s Finance Minister Hong Nam-ki speaks in a meeting with officials in Seoul, on May 20, 2019. [Photo by Ministry of Economy and Finance]

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The intensification in the trade friction between the United States and China could bring about “graver than expected consequences” on the Korean economy, Korea’s top economic policy chief said, ordering the government to ready “all possible” policy actions to defend the fortress on local economy and capital markets.

“The deepening trade conflict between the U.S. and China could have more serious impact on the economy,” said Hong Nam-ki, deputy prime minister and minister of economy and finance, at a meeting of economy-related ministers on Monday.

He ordered authorities to be ready “against all possibilities” and do their utmost to defend the economy and markets.

Hong’s remarks come as the U.S. and China, Korea’s two biggest trading partners that account for a combined 39 percent of Korean exports, have entered broader economic war that is spilling over from goods to investment and technology front. The U.S. has threatened maximum 25-percent tariff on additional $300 billion, which would mean practically all shipments from China would come under heavy duties. Korean exports inevitably would take a hit as 80 percent of exports to China are intermediary goods that are assembled in China for shipments to the U.S. and elsewhere on top of slowed demand from the two warring economies.

Hong said that the worsening trade tensions have fanned volatility in the financial market and commanded authorities to take “timely stabilization actions” upon signs of abnormalities.

The government will offer financial assistance to protect exporters including raise in the trade credit to 500 billion won ($419 million) on top of other support actions.

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The government will announce additional measures to bolster export of consumer goods, digital trade, and services.

To help Koreans seek replacement markets, Seoul will accelerate free trade agreement negotiations with the Philippines, Malaysia, and Indonesia, and expand exports of intermediary goods to emerging countries, Hong said.

The chief economic policymaker also asked for support from the National Assembly and requested lawmakers to pass the supplementary budget plan this month as it includes spending on projects to boost domestic demand and exports to enhance competitiveness in exports.

Meanwhile, the government will intensify outreach activities with the U.S. so that Korea is exempted from auto tariffs, Hong said. Last week, the U.S. announced to delay 25 percent tariffs on auto imports for up to 180 days.

The government will also review additional measures to enhance competitiveness of Korea’s auto industry and complement various plans to prepare for any conditions.

It will also put out efforts to diversify its trading partners and continue to carry out New Southern Policy by discussing future plans for the Comprehensive Economic Partnership Agreement (CEPA) with Indonesia and promoting respective bilateral free trade deals with Malaysia and the Philippines, Hong said.

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