Global Trade Bellwether Sends Ominous Sign About Demand

For anyone hoping global tech might be the one industry to dodge the economic fallout of the coronavirus, falling shipments from the world’s biggest chip exporter offers little comfort.

South Korea’s semiconductor exports dropped 15% in the first 20 days of April compared with last year, data from the Korea Customs Service showed Tuesday. Two fewer business days in the period compared with 2019 exaggerated the slump this month, but there’s still a warning signal: Chip sales haven’t escaped the gloom.

Clearly, there’s more demand for semiconductors used for cloud-computing now that lockdowns are forcing more people to work, study and play online. But that’s offset by the fact that businesses aren’t upgrading office equipment and factory machines, and consumers aren’t shopping for smartphones, which now eat up about as many semiconductors as any other application.

Overall, South Korea’s trade report showed exports dropping by a daily average of 17% in the first 20 days of the month. The report, which is closely watched as a bellwether for global commerce, is another wake-up call for how bad things could get on the trade front, even as new infection counts start to ebb in many parts of the world. The big problem now is the dearth of demand.

For countries like South Korea and also for Japan, which released export numbers Monday, a dependence on trade could end up being an Achilles heel amid the pandemic. Japanese exports dropped 12% last month, with auto shipments to the U.S. plunging by almost a quarter and the numbers certain to worsen in coming months.

Lest anyone think the Japanese economy is likely to fare better in the pandemic because it has far fewer known virus cases than other big countries, there’s probably a lesson to be drawn from Japan’s disastrous performance during the financial crisis nearly 12 years ago.

Back then, it seemed at first that Japan would be spared the worst of the crisis because its banks had stayed clear of the risky investments that decimated Wall Street. In the end, though, damage from exports eventually caused its economy to shrink more than any other country in the G-7. Policy makers worry something similar could happen this time, too.