A full-blown trade conflict between China and the United States - the two largest markets responsible for nearly 40 percent of Korea’s annual exports - could pare growth in Korea’s trade-reliant economy, warned Hyundai Research Institute (HRI).

According to a report released by the research institute on Sunday, a 1 percentage point decline in the growth of China’s gross domestic product (GDP) as the result of steep tariffs on its shipments to the U.S. would cut gains in Korean exports by 1.6 percentage points and GDP by 0.5 percentage point.

The toll would not stop in intermediary exports to China, it said. Data of the Organization for Economic Cooperation and Development (OECD) suggest Korea’s economic indicators follow those of China most closely than other markets.

The correlation coefficient between the two economies stood at 0.565, higher than the average ratio of 0.306 between Korea and other OECD economies and 0.054 of Korea and the U.S.

If the Chinese economy grows less than 6 percent this year, falling short of the growth estimate of 6.6 percent by the International Monetary Fund (IMF), Korea’s GDP growth could lose as much as 0.3 percentage point from Bank of Korea-estimated 2.9 percent, the research institute estimated.

A growth of 4.4 percent in China would translate into a 1.2 percentage point cut in Korea’s growth rate this year.

Seoul authorities should come up with preemptive measures to offset China’s dangers spilling over to Korea, said Joo Won, director at the HRI.

By Yoon Won-sup and Choi Mira

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