South Korean businesses are bracing for an impact from US tariffs aimed at China, a senior trade official from Seoul has warned. Kim Yun-hee, a senior trade commissioner from the Korea Trade-Investment Promotion Agency (KOTRA) office in Beijing, said South Korean companies had raised concerns over the trade frictions, including firms that did not have products on the US tariff list. “South Korean exporters depend heavily on China and the US. It will be one of the hardest hit economies in the world if an all-out trade war breaks out,” Kim said. “Many of these companies will be hit indirectly because they sell intermediate goods to China and are linked to US companies in China,” Kim said, adding that concern was growing among exporters. Are these Chinese export numbers an olive branch in the countdown to a trade war with the US? China and the United States accounted for 24.8 per cent and 11.9 per cent, respectively, of South Korea’s total exports last year, according to the Korea International Trade Association (KITA). In the worst-case scenario of a full-blown trade war, South Korean exports would drop by 6.4 per cent – an estimated loss of US$36.7 billion, according to a KITA report. The impact would be a result of the US reducing imports from China, which in turn buys intermediate – producer or semi-finished – goods from South Korea. Those goods accounted for 78.9 per cent of its total exports to China last year, according to UN Comtrade and KITA data. Even if the damage is reduced by China making compromises in its trade row with the US, South Korea will still take a hit. If China imports more semiconductors from the US, for example, South Korean chip exports could fall by US$4 billion annually – knocking 0.7 per cent off the value of its total annual exports, the KITA report said. Semiconductors are the main intermediate product exported by South Korea. Chips from South Korea accounted for 25.3 per cent, or US$65.5 billion, of the total imported by China last year, according to the Institute for International Trade in Seoul. But semiconductors from the United States accounted for just 4 per cent, or US$10.5 billion, of China’s chip imports. “Electronics and semiconductors are included in [Trump’s] second set of tariffs, which would then put South Korean companies under substantial pressure,” Kim said. Another source close to KOTRA said some of the agency’s overseas offices had been asked to prepare reports assessing the impact of a possible trade war on South Korean companies. But it is not just the impact of import duties. South Korean businesses are also closely watching what happens to China’s economy, which could have a knock-on effect for their operations in the country. A former senior manager of Lotte Group subsidiary Lotte Shopping said a full-scale trade war would hurt retailers in China. “If trade friction worsens between China and the US, and slows down Chinese economic growth, Lotte’s profits in the country will also be eroded,” the former manager said. Lotte has department stores in four Chinese cities – Chengdu, Tianjin, Weihai and Shenyang. Any reduction in the spending power of China’s middle class as a result of a slowing economy would also have an impact on the company’s profits. “China’s middle class must grow for [Lotte’s] businesses to be successful, and the trade dispute between China and the United States certainly doesn’t help,” the former manager said. How US-China rivalry over technology is a front for a geopolitical quest for supremacy That worry was shared by a source at a South Korean duty free shop, who said a slowdown in the Chinese economy could have a long-term impact on retailers. “Chinese customers make up approximately 90 per cent of our [sales] at stores in South Korea and Japan,” the person from Shilla Duty Free said. But the trade conflict could benefit some South Korean sectors, including producers of styrene monomer – a chemical used to make plastics. The findings of China’s recent anti-dumping investigation into the product actually gave firms like Lotte Chemical an advantage, according to a source at the company. “The duties imposed on [Lotte Chemical] are lower than what we were expecting from the preliminary investigation,” the source said. Time for a reality check for China’s wishful US trade war thinkers, Chinese professor warns China’s Ministry of Commerce announced the results of its styrene monomer investigation on June 22, saying it would slap tariffs of up to 55.7 per cent on imports of the chemical from the US. That compares with the tariffs on the product specifically applied to South Korean companies such as Lotte Chemical at 7.5 per cent, and LG Chem and SK Global Chemical both at 6.6 per cent. The source said Lotte Chemical had been expecting duties of more than 8 per cent. “This latest measure boosts the comparative advantage of many of the South Korean petrochemical companies in the Chinese market,” the person said. Amid the uncertainty, the South Korean government is already looking to other export destinations. Late last month, South Korean President Moon Jae-in and Russian President Vladimir Putin agreed to start negotiations on a free-trade deal. It followed US President Donald Trump releasing a list of US$34 billion of Chinese goods subject to 25 per cent tariffs. They will take effect this Friday, and Beijing has matched them with its own retaliatory duties that will kick in on the same day. A South Korean diplomatic source said Moon was trying to “diversify the country’s export destinations” to offset the impact of the trade conflict. Moon also expressed his concerns about the row in April, saying it would have a negative impact on his country’s economy.