As goes Samsung, so goes South Korea. This, of course, is a play on the old adage that what’s good for General Motors is good for the US economy, and vice versa.
Yet Korea’s biggest conglomerate may now be offering omens for global growth, too.
A surprise profit warning from the globe’s biggest chipmaker comes two months after Apple cut its revenue outlook for the first time in nearly two decades. Samsung blamed an inventory correction for an expected shortfall in first-quarter earnings. That advisory alone encapsulates U-turns in demand for everything from memory chips to PC display panels to smartphones.
And it’s emblematic of where trade-reliant economies around the globe are heading. Korea’s sizable, yet open economy is often a weathervane for global gross domestic product. In that sense, consider Samsung’s downshift a GDP report with implications from Tokyo to Washington.
It is, for the tech world, the equivalent of the “inverted yield curve” creating anxiety internationally. This is when interest rates on long-term debt are lower than short-dated securities. It’s typically a harbinger of recession, and the US is flashing such warning signs as we speak.
Samsung’s woes don’t just confirm the gloom. They suggest things are worse than many economists believe. The same with official Korean data. In February, exports contracted at their steepest pace in three years. The 11.1% plunge in annualized terms was the third monthly decline, and further evidence that the global trade war has slammed Chinese growth.
The real worry is the steady downward trajectory as collateral damage from Donald Trump’s trade war increases. Japan’s overseas shipments also fell for a third straight month in February – by 1.2% year-on-year. That has the Bank of Japan under pressure to intensify quantitative easing efforts. Six months ago, the betting was on the BOJ “tapering.” Now it’s on pushing QE into new territory.
Count Taiwan and Singapore among the most vulnerable as US President Trump ups the ante. On the surface, the talk is of détente and a face-saving bilateral trade pact. Below it is Washington’s determination to see if President Xi Jinping’s government blinks first.
Last week, Trump admitted that his 25% tariffs on roughly $250 billion of mainland goods will remain regardless of a high-level deal.
Jeffrey Wright of Eurasia Group reckons a deal could come together in April or May, when Xi visits the US. Or it could be punted to late June, when Xi and Trump are in Tokyo for a Group of 20 meeting.
“Both leaders face major downside risks the longer the negotiations drag out,” Wright says. “Trump primarily on the agriculture sector side, and Xi over the economic impact of continued uncertainty on tariffs, and delayed investment decisions in the export sector.”
Those impacts are fanning out across the region. For South Korea’s Moon Jae-in, the turbulence couldn’t come at a worse moment. North Korean peace efforts aren’t proceeding as smoothly or rapidly as hoped. And President Moon’s pledges to retool the economy since taking office in May 2017 have borne little fruit.
The result: an approval rating at all-time lows. It recently fell as low as 44% from a high of 83% in late 2017.
That’s reducing the political capital Moon needs to reign in the family-owned conglomerates that tower over the economy. Moon’s plans to give “trickle-up growth” a try and “democratize” economic opportunity have barely left the drawing board. Rather than curb the monopolistic behavior of the so-called chaebol, Moon has taken to working with them to boost GDP.
It’s the same pattern that ruined the 2013-2017 presidency of Moon’s predecessor, Park Geun-hye. And yet, rather than police the excesses of chaebols, including Samsung, Moon’s government is looking on with alarm as the profit warnings increase. Warnings that bode ill for Korea’s 2019 – and the entire global economy.