[Why&Next] Amid US-China Conflict, US Emerges as South Korea's Largest Trade Surplus Partner in 21 Years

Sharp Decline in Semiconductor Exports Due to Worsening Business Conditions
108 Billion USD Trade Surplus with the US in First Four Months
Strong Auto Exports Expected to Surpass China and Vietnam
Experts Say "Recovery of Exports to China Not Easy"

Amid escalating tensions between the U.S. and China, the United States is expected to reemerge this year as South Korea's largest trade surplus partner for the first time in 21 years. South Korea's largest trade surplus partner shifted from the U.S. to China in 2003, and last year, Vietnam took that position. This year, exports to the U.S. are rapidly closing the gap with exports to China, driven by a recent surge in automobile exports, raising the possibility of reclaiming the top spot in regional exports. As the U.S.-China conflict intensifies, leading export items are changing, causing significant shifts in South Korea's trade map, which is highly dependent on external markets.

According to the Korea International Trade Association and the Bank of Korea on the 17th, the U.S. was South Korea's largest trade surplus partner through April this year. The trade surplus with the U.S. from January to April reached $10.85 billion, far surpassing Vietnam's $7.62 billion, which had become South Korea's largest trade surplus partner for the first time last year. In 2002, the trade surplus with the U.S. was $9.8 billion, making the U.S. South Korea's largest trade surplus partner, and now, after 21 years, it has reclaimed that position.

◆In 2002, the U.S. was South Korea's Largest Surplus Partner...Thanks to Automobiles and Semiconductors

In 2002, when the U.S. was South Korea's largest surplus partner, sectors such as automobiles, semiconductors, video equipment, auto parts, and home appliances were all performing well. In particular, Korean-made cars were perceived as affordable yet relatively high-performing vehicles, leading to strong sales of low-priced passenger cars. Looking at the top export items to the U.S. in 2002, automobiles were the main contributor. South Korea exported $6.94 billion worth of automobiles to the U.S. in 2002, marking a steep growth of 17.9% compared to the previous year. With the emergence of digital TVs like PDP and LCD, exports of video equipment to the U.S. surged by 34.3%.

However, a year later in 2003, the ranking of South Korea's largest surplus partners changed. China overtook the U.S. at that time. In 2003, the trade surplus with China reached $13.2 billion, surpassing $10 billion for the first time. While the trade surplus with the U.S. slightly declined to $9.45 billion, China became South Korea's top trading partner and has maintained the position of largest trade surplus partner since then. Exports of wireless communication devices such as mobile phones and computers led exports to China, and semiconductor exports to China grew rapidly by 111.5% compared to the previous year, laying the foundation for the current situation. Although semiconductors were South Korea's top export item in 2002-2003, exports were mainly to advanced countries like the U.S., and China's share was not significant at that time. Gradually, as China's manufacturing of electronic and IT products developed and exports increased, the share of semiconductor exports grew, and in 2005, semiconductors became the top export item to China. In the early 2010s, displays were the top export item to China, but from the mid-2010s, semiconductors regained the top spot.

However, last year, the global economic downturn severely impacted semiconductors, causing South Korea's exports to China, which heavily rely on semiconductors, to fall into a slump. The trade surplus with China last year shrank drastically to $1.213 billion from $24.285 billion the previous year, and through April this year, the trade balance with China recorded a deficit of $10.066 billion. This contrasts sharply with the trade surplus with the U.S., which reached $10.85 billion through April, driven by strong automobile exports.

Ultimately, the rapid changes in the ranking of South Korea's trade surplus partners highlight the significant influence of semiconductor exports. As exports of semiconductors, South Korea's main export item, sharply declined, exports to China decreased for 11 consecutive months. According to the Ministry of Trade, Industry and Energy, exports in April totaled $49.6 billion, down 14.2% from last year, with $4.4 billion of the $8.2 billion total export decrease attributed to semiconductor exports. The share of semiconductors in exports to China also dropped from 30.8% in 2021 to 27.1% in the first quarter of this year. As exports to China, which has a high semiconductor export share, shrink, the trade deficit with China has continued for seven consecutive months.

Vietnam, which briefly emerged as South Korea's largest trade surplus partner last year, was also hit hard by the global IT downturn. Although Vietnam is rapidly replacing China in the market due to U.S.-China tensions, exports to Vietnam have also collapsed amid semiconductor sluggishness. Through April, the trade surplus with Vietnam was $7.62 billion, the second-largest after the U.S.

◆Shifted U.S.-China Rankings Due to Semiconductor Slump and Automobile Boom

Meanwhile, automobile exports in April surged 40% year-on-year to $6.156 billion, ranking second in export value. While semiconductor industry conditions hit bottom and export slumps continue, automobiles are quickly filling the gap, emerging as the new 'top export star' replacing semiconductors. Eunyoung Lim, a researcher at Samsung Securities, said, "Hyundai Motor and Kia's U.S. retail sales in April increased by 14.9% and 15.5% respectively compared to the previous year, with U.S. sales driving overseas performance," adding, "In the second quarter, the combination of the sales peak season and a weaker Korean won is expected to result in surprising earnings."

Jangsang Sik, head of the Trend Analysis Office at the Korea International Trade Association, stated, "Looking at items, automobiles and semiconductors, and countries, the U.S. and China show stark contrasts," diagnosing, "With the intensification of U.S.-China tensions surrounding semiconductors and the worsening semiconductor industry conditions, the export landscape is at a turning point undergoing rapid change." He added, "Exports of automobiles and steel are expected to continue strong, offsetting semiconductor sluggishness, leading to expanded exports to the U.S. Based on trends through April this year, the U.S. is expected to reemerge as South Korea's largest trade surplus partner for the first time in 21 years."

◆Delayed China Reopening, Difficult Past Recovery...Need to Diversify Export Markets

Experts predict that exports to China will not recover to past levels easily. China's reopening of economic activities has focused more on services, tourism, accommodation, and aviation rather than manufacturing, production, and investment, resulting in less impact on South Korea than expected. Therefore, diversifying export markets to the U.S., the European Union (EU), the Middle East, and ASEAN is considered essential. Geunhyung Lim, head of the International Trade Team at the Bank of Korea, said, "We are closely monitoring semiconductor market conditions and changes in export structures amid U.S.-China tensions."

He explained that South Korea, as a small open economy, cannot avoid the effects of U.S.-China tensions, requiring sophisticated strategies.

Hyemi Yoo, a professor at Hanyang University's College of Economics and Finance, said, "Although there were high expectations for China's reopening, recovery has been centered on domestic demand, so South Korea's exports have not improved. Additionally, changes in China's industrial structure and increased self-sufficiency in intermediate goods mean that South Korea, which exports many intermediate goods, will inevitably be impacted," adding, "As China diversifies its import sources not only from South Korea but also from other ASEAN countries, South Korea's exports to China are unlikely to increase significantly in the future."

Professor Yoo emphasized, "If South Korea has overly relied on China and semiconductors for exports, it should now turn its attention to the Middle East and other ASEAN countries and diversify export items." She added, "Especially in the Middle East, a royal state, personal connections and relationships significantly influence business, so if President Yoon Seok-yeol, who has taken on the role of 'No. 1 salesperson,' improves relations diplomatically, it could positively affect exports."