[Click eStock] South Korea Trade Balance Shows 'Red Light' Due to US-China Economic Slowdown

G2 Export Share at 38%, Concerns Over Demand Constraints Amid Economic Slowdown
Downward Pressure Expected on Intermediate Goods Exports to the US
Concerns Over Economic Growth Rate Slowdown Due to Weakened Export Momentum

South Korea's trade balance has recorded a surplus for 15 consecutive months, driving the economy, with the export growth rate in August reaching double digits at 11.4%. However, Hana Securities Research Center analyzed that this trend is unlikely to continue. The main reason is the potential limitation in export demand due to the economic slowdown in the G2 countries, namely the United States and China.

On the 6th, Hana Securities researchers Jeon Gyu-yeon and Kim Hyung-kyun stated, "Due to the trade dispute between the United States and China, South Korea's export share to the U.S. increased from 14.4% in 2020 to 18.8% in 2024, while the export share to China decreased from 26.0% to 19.1% during the same period," adding, "Currently, the share of G2 countries in South Korea's exports stands at 38% based on data from January to August, and the economic trends and structural changes in these countries inevitably have a significant impact on South Korea's exports."

South Korea's export structure is more focused on intermediate goods than final goods, and especially in exports to China, the share of intermediate goods exceeds 80%. Items such as semiconductors still play an important role in China's intermediate goods imports, but other items like displays and automobiles are experiencing stagnation in export demand due to China's technological advancement and domestic substitution. Although exports to China have recently shown an upward trend, this is due to a rebound in intermediate goods exports, while the growth rates of consumer goods and capital goods remain minimal. Following the U.S. presidential election in November, there is a possibility that the direction of intermediate goods exports to China may change due to intensified trade disputes, warranting caution.

Downward pressure on intermediate goods exports is also expected in exports to the U.S. Although the share of intermediate goods in U.S. exports is relatively low at 45%, intermediate goods exports are greatly influenced by the U.S. economy. Intermediate goods have a high correlation with U.S. private consumption and investment, and due to the current high interest rates and election uncertainties in the U.S., new investments are being postponed and economic slowdown including the labor market is anticipated. Therefore, the economic slowdown in the U.S. is highly likely to affect South Korea's intermediate goods exports. Major items in intermediate goods exports to the U.S. include steel, chemical products, and petroleum products.

Researchers Jeon Gyu-yeon and Kim Hyung-kyun concluded, "In summary, South Korea's trade surplus trend will be maintained, and exports of final goods, which account for about 50% of exports to the U.S., are expected to provide some support," adding, "However, except for semiconductors, the number of domestic export items showing strong performance is limited, and with the global manufacturing industry weakening, a decline in South Korea's export momentum appears inevitable." If domestic demand recovery remains slow, South Korea's economic growth rate is likely to gradually decrease from 2.4% this year to the low 2% range."