[Export Big 5 Leap] Korea Gains Momentum to Overtake Japan and Enter '5th Place in Exports'

Goal of $700 Billion This Year
Export Gap with Japan Continues to Narrow
Positive Signs of Rising Two Steps from Current 7th Place

Exports have shown a 10% increase this year, serving as a strong pillar for South Korea's economic growth. If this trend continues, it is expected that not only will the annual target of $700 billion be achieved, but South Korea could also surpass Japan to become the world's 5th largest exporting country.

According to the World Trade Organization (WTO) on the 20th, South Korea's export value in the first quarter (January to March) of this year was $163.7 billion, ranking 7th among world countries, following Italy ($168.3 billion, 6th).

The global top 5 exporters (China, United States, Germany, Netherlands, Japan) have maintained the same country composition with only slight ranking changes since the Netherlands entered 5th place in 2008. Germany lost its position as the largest exporter to China in 2009 and was overtaken by the United States in 2010. Since 2019, the export big 5 have been China, the United States, Germany, the Netherlands, and Japan in that order. South Korea rose from 12th place in 2008 to 7th in 2010 and recorded 6th place for the first time in 2015. Recently, it has maintained positions between 6th and 8th. Meanwhile, Japan was overtaken by the Netherlands in 2019 and has held 5th place since then.

An official from the Ministry of Trade, Industry and Energy said, "Japan's export value has exceeded $700 billion annually for the past three years, and South Korea aims to achieve $700 billion this year, making entry into the export big 5 a challenging goal. However, key items such as automobiles, ships, and displays are showing steady growth, especially semiconductors are clearly recovering, so entering the export big 5 is a goal we can aim for."

The export gap between South Korea and Japan continues to narrow. Last year, Japan's export value was $717.3 billion, $85.1 billion more than South Korea. This gap narrowed from $4.8 billion in January to March this year to $2.3 billion recently (January to May). Minister of Trade, Industry and Energy Ahn Duk-geun expressed optimism at a press briefing last month, saying, "If export performance catches up with or surpasses Japan, it will be an opportunity for the industry and the public to tighten their reins again. It will be a moment to realize 'we have come this far,' and companies will invest with confidence and hope for the long-term future."

Exports not only enhance national prestige but also have a significant impact on real economic growth. Last year, exports amounted to $632.2 billion, a 7.5% decrease from the previous year, but still the third highest export value ever recorded. The Korea International Trade Association (KITA) analyzed in its recently published report, "Analysis of the Contribution of Exports to the National Economy," that exports made a high contribution to South Korea's economic growth. Jo Eui-yoon, a senior researcher at KITA, emphasized, "Last year, South Korea's exports greatly contributed to the production, added value, and employment inducement of the national economy, leading domestic economic growth. Efforts are needed to expand the economic ripple effects of exports, such as fostering industries with high added value export goods and significant job creation effects."

According to the report, of South Korea's real economic growth rate of 1.36% last year, the export contribution was 1.17 percentage points. Exports accounted for 86.1% of total economic growth. The ratio of export value to gross domestic product (GDP) also rose to 35.7% last year, up 1.0 percentage point from 34.7% in 2020, marking the highest level in the 2020s. The share of value-added induced by exports in GDP also increased by 0.8 percentage points to 26.7% last year compared to the previous year.

Although export value decreased by 7.5% last year, export volume increased by 1.4%. Researcher Jo explained, "The high contribution of exports to economic growth despite the decrease in export value is due to the solid increase in export volume and the growth of exports in items with significant economic ripple effects. Exports of automobiles and general-purpose machinery, which have high added value and employment inducement effects, performed well, minimizing losses caused by semiconductor sluggishness."

The export growth trend is playing a significant role in boosting the economic growth rate. In the first quarter, the GDP growth rate was 1.3%, with net exports (exports minus imports) contributing 0.8%. Lee Chang-yong, Governor of the Bank of Korea, raised the growth forecast for this year from 2.1% to 2.5%, reflecting the better-than-expected export performance, stating, "Three-quarters of the upward revision in the growth forecast is due to the increase in net exports. Exports were better than expected, and imports decreased."

The strong export trend in South Korea, which has increased for eight consecutive months from October last year to May this year, is also confirmed by the figures. Total exports from January to May this year amounted to $277.7 billion, a 9.9% increase compared to the same period last year. In particular, semiconductor exports recorded a cumulative $52.3 billion by May, a 52.5% increase compared to the same period last year. Automobile exports in May reached $30.8 billion, the highest ever, and ship exports increased by 54%, the highest among 15 major items, reaching $10.2 billion, leading the upward trend of South Korean exports. The trade balance has maintained a surplus for 12 consecutive months since June last year, showing a surplus of $32.3 billion. Considering the $66.9 billion deficit from January to May last year, this represents an improvement of nearly $100 billion this year.

The government expects the export growth and trade surplus trend to continue in June as well. There is a high possibility of achieving nine consecutive months of export growth and 13 consecutive months of trade surplus. The Ministry of Trade, Industry and Energy plans to concentrate all available resources and provide full support as a public-private one team to maintain this favorable trend until the end of the year.

To this end, through additional export support measures announced earlier this month, the scale of export financing by policy financial institutions will be expanded by 5 trillion won this year to supply a total of 365 trillion won, and export preferential products of the five major commercial banks will also be expanded by 2 trillion won, providing an additional 7 trillion won in export financing. To strengthen export competitiveness by industry, the government will apply a 0% tariff rate on allocated tariffs for naphtha, liquefied petroleum gas (LPG), and crude oil used for naphtha and LPG manufacturing until the end of the year. Additionally, the export field support team will promptly resolve on-site difficulties faced by Korean export companies.