Following a panic, Silicon Valley Bank went bankrupt on March 10, followed by numerous articles and reports. The concern is quite normal, as financial markets fear the spread of bankruptcy to local banks in the United States. France 24 newspaper explains: The rise in rates has put pressure on banks, which lend long-term and borrow short-term, with short rates currently much higher than long rates. It has also encouraged customers to invest their money in financial products that pay better than current accounts and has shaken up several economic sectors, particularly new technologies.
A wave of withdrawals caused the failure of three banks this week, namely SVB, Signature Bank but also Silvergate Bank, smaller but known for their privileged links with the digital currency community. This will, by domino effect, create economic constraints for other countries. Among the United States’ trading partners, we can take Korea, which is very concerned about all this. Indeed, as soon as this bankruptcy was announced, Finance Minister Choo Kyung-ho and Bank of Korea Governor Lee Seung-heon met to discuss the potential impacts of this bankruptcy on Korea and its market. The minister said “it will not be possible to rule out the expansion of market financial fluctuations and uncertainties due to this SVB liquidity crisis which will result in the closure of banks” adding that “for the moment, there are still many experts who say that this crisis will not spread throughout the US banking and financial system.” The Korean government’s concern is confirmed by a statement from Yoon Seok Yeol on yesterday’s events.
- The Partnership between Korea and the United States
Korea has many economic agreements signed with the United States. It has other important partners such as Japan, but some of its industries such as the automotive, cultural and food industries are increasingly based in the United States. If we take the simple example of the cultural industry, the company HYBE, which owns the KPOP group BTS, has a headquarters in the United States with Scooter Braun’s SB Projects agency. So this is something to watch in the future, the Korean industry is reaching a peak of growth that requires it to reinvent itself, it should not be that this crisis has more serious consequences.
Especially since this would threaten the entire country. Measures have also been announced to increase exports, a real breeding ground for the Korean economy which has also been its weakness during the pandemic. Therefore, Korea is really paying attention to the events of this week and the Bank of Korea will be ready to react in order to protect the national capital.
- The Partnership with China
From this perspective, it is rational to think that Seoul would like to get closer to its main economic partner, China. Indeed, the two countries have intensified their economic relations so that China became Seoul’s main trading partner in 2014. In 2020, South Korea exported $131 billion worth of goods to China. The main categories of goods exported by South Korea to China were integrated circuits ($37.5 billion), machines with individual functions ($5.78 billion) and refined petroleum ($5.62 billion). China, on the other hand, exported $110 billion worth of goods to South Korea in 2020. The main products exported by China to South Korea were integrated circuits ($16.3 billion), broadcasting equipment ($3.89 billion) and computers ($3.86 billion). Since 2004, China has been Korea’s main trading partner and is considered a key player in improving inter-Korean relations.
Therefore, it is logical to think that the rapprochement between Korea and China since the beginning of President Yoon’s term, and his stated desire to give China a leading role in inter-Korean relations, is fertile ground for greater economic collaboration between the two countries. Knowing that measures to intensify relations in terms of supply had been taken following the pandemic. This point will necessarily be put on the table, in favour of China against the United States. Relations between China and Korea are set to intensify, and relations with the United States of America will mutate, change and evolve. In a context of permanent tension, with the war in Ukraine and the issues surrounding the Indo-Pacific and reunification issues. The bankruptcy of Silicon Valley Bank will be an argument once again in favour of the mutation of the international relations of the Korean peninsula.
Disclaimer: The views and opinions expressed by the author do not necessarily reflect the views of the Government of India and Defence Research and Studies
Title image courtesy: Bankrate