April Current Account Surplus Expected to Drop Sharply... U.S. Tariffs Not the Cause? [BOK Focus]

U.S. tariffs begin to take effect, raising concerns over exports and the current account
However, April's customs-based trade figures remain similar to March
April sees a 'seasonal deficit' in the primary income account due to foreign dividend payments
Deficit trend narrows thanks to the 'Seohakgaemi effect'

"The current account surplus for April is expected to decrease significantly." The concerns that had been anticipated are now showing signs of becoming reality. Given the export-dependent structure of the Korean economy, there was a dominant outlook that the favorable trend in the current account would weaken after the second quarter of this year, when U.S.-imposed tariffs would begin to take effect in earnest. As a result, even though the current account surplus for the first quarter of this year (January to March) reached $19.26 billion?larger than expected?the annual forecast for a $75 billion surplus is now almost certain to be revised downward. Official projections have already been released, predicting a sharp reduction in the current account surplus for April.

However, analysis indicates that the main reason for the reduction in the April surplus is not the U.S. tariffs. According to the "April 2025 Export-Import Trends" released earlier by the Ministry of Trade, Industry and Energy and the Korea Customs Service, both exports ($58.2 billion) and imports ($53.3 billion) in April were at similar levels to those in March, showing no signs of a sharp decline. The trade balance also posted a surplus of $4.88 billion, similar to March. With customs-based exports and imports remaining at comparable levels to March, the goods balance?which reflects the difference in goods exports and imports between residents and non-residents in the balance of payments statistics?is also expected to post a surplus similar to March ($8.49 billion). Nevertheless, the reason for expecting a significant reduction in the April current account surplus is largely attributed to seasonal factors related to foreign dividend payments in April.

April Primary Income Account Posts 'Seasonal Deficit'... Deficit Narrows Due to Overseas Individual Investors

In April, when major companies concentrate their dividend payments, foreign dividends are recorded in large amounts, resulting in a seasonal deficit in the primary income account, which reflects the difference in "wages and salaries" and "investment income" between residents and non-residents. According to the Bank of Korea's Economic Statistics System (ECOS) on the 12th, the primary income account for April has posted a deficit every year since 2010, except for 2012 ($22.41 billion surplus). In 2015, the deficit widened to as much as $5.2692 billion. The poor performance of the primary income account has led to current account deficits in April in five instances: April 2011 (-$2.5452 billion), April 2012 (-$0.1448 billion), April 2019 (-$0.5274 billion), April 2020 (-$4.0238 billion), and April 2023 (-$2.4272 billion).

However, since the COVID-19 pandemic, the primary income account deficit has been narrowing. This is due to increased direct overseas investment following the U.S. Biden administration's Inflation Reduction Act (IRA) and a rise in overseas securities investment by individual investors, known as "Seohakgaemi," which have boosted residents' dividend and interest income. The primary income account deficit stood at $3.2347 billion in April 2021, but decreased to $2.5727 billion in April 2022, $1.8554 billion in April 2023, and $1.6097 billion in April last year. This trend is expected to continue this year as well. As a result, while the goods balance?which accounts for the largest portion of the current account in April?is expected to be similar to March, the primary income account is projected to swing from a $3.23 billion surplus in March to a deficit in April, making a sharp reduction in the current account surplus inevitable.

U.S. Tariffs to Have Gradual and Long-term Negative Impact... Current Account Surplus Forecast Revised Downward

However, even if the numbers do not show an immediate shock in April, U.S. tariffs are expected to have a gradual and long-term impact on Korea's exports, imports, and the domestic economy overall. Once the impact of U.S. tariff policies becomes fully realized, it is expected that sectors with a high share of exports to the U.S.?such as automobiles, auto parts, and steel?will inevitably see a deterioration in performance.

Shin Seungcheol, Director General of Economic Statistics Department 1 at the Bank of Korea, said, "So far, customs export data indicate that, for steel and aluminum, economic and price factors have had a greater impact than tariffs. However, we expect tariffs to have a broader impact going forward." He continued, "Korean automobile exports to the U.S. have continued to decline this year, with sluggishness seen due to the temporary demand stagnation for electric vehicles, known as the 'EV chasm,' and a base effect from previously strong exports. The impact of the newly implemented 25% tariff on automobiles also cannot be ignored." He added, "The recent increase in pharmaceutical exports to the U.S. is believed to be due to early shipments of biosimilar and contract manufacturing products ahead of the implementation of item-specific tariffs. While some items are increasing due to unique factors and others are decreasing, the effect of tariff policy will become more pronounced over time."

As a result, the current account surplus for this year is expected to fall short of the $75 billion forecast made in February. The impact of U.S. tariff policies is expected to be stronger and more extensive than previously thought, and a downward revision of the forecast is anticipated in this month's economic outlook. The extent of the downward revision will depend on the outcome of future negotiations and the intensity of tariff policies that follow. Director Shin said, "Basic and item-specific tariffs are already in effect, but reciprocal tariffs have been deferred for 90 days. Among item-specific tariffs, those on pharmaceuticals and semiconductors have not yet been finalized, so there is still significant uncertainty. Not only our negotiations, but also the ongoing U.S.-China negotiations will have a major impact. More assessment is needed to determine the scale of the downward revision."