The 2-Minute Thought: Postcard from Korea and China

After spending a week in South Korea, I can tell you that the threat from North Korea just isn’t top-of-mind for South Koreans.

Not a single person I spoke to ever brought up North Korea or Kim Jong Un or military conflict in conversation.  As you might have heard elsewhere, the geopolitical headlines that have been alarming the rest of the world are, in South Korea, just business as usual.

What did get mentioned a lot, however, were the consequences of allowing the U.S. to install its Terminal High Altitude Area Defense or THAAD missile defense system in South Korea. 

That move, which so angered China, inspired official and unofficial Chinese retaliation against Korean firms and products.  China is Korea’s largest trading partner.  It accounts for a quarter of its exports.  Getting shut out of China hurts. 

In March, Beijing banned package tours to South Korea, which cut the number of Chinese tourists there by 2.3 million in just the five months between March and July.  Bloomberg estimates that South Korea has lost $4.7 billion of revenue from Chinese tourism alone.  Including Chinese boycotts of other Korean products, China’s retaliation may have cost Korea 0.3% of economic growth so far this year.  The Hyundai Research Institute figures that total lost Chinese business will come in at $7.5 billion for the year. 

In the Seoul neighborhood where I stayed, the difference was visible.  Not too long ago, the neighborhood had been a convenient way-station for Chinese tour groups.  It has no famous sites, but it’s an easy place for tour buses to park.  Two years ago, there were  storefronts selling “Korean souvenirs” with signs written in Chinese advertising prices cheaper than the traditional markets downtown.  There was a mysterious Chinese food canteen set up specifically to cater to Chinese tour groups that no Korean would ever enter.  There was a lot of Chinese being spoken on the streets.  On this trip, though, it was all gone. “What happened to all of it?” I asked my friend.  “THAAD,” he answered.

And whenever I asked about the state of the Korean economy, the answer usually involved China.  A chemicals exporter told me that business around the world was good – except for China.  The global economy was strong,  personal consumption was healthy, and that meant the need for the basic chemicals that go into soap and cleaning products and packaging was good  – unless you exported to China.  Fortunately, he said, he imported from China and exported to the rest of the world. 

I mentioned to a jeweler that the perception in the U.S. is that the Korean economy is healthy and that all the economic numbers look good.  Oh no, he said, the Korean economy has been depressed because we haven’t been able to sell to China.  But it will be getting better because China is opening up again.

That is what everyone said.  Things are looking up because a few days after I arrived in Korea, there was an announcement that China and South Korea had agreed to improve relations.  Things are warming up again.

And when I stopped in Shanghai for the weekend on the way home, there were no visible signs that Korean businesses were suffering.  At least, the Korean cosmetics stores were as popular and as packed with shoppers as they could be.