Korea registered a trade deficit of $9.97 billion in 2023. This represents a modest decline compared to 2022’s record shortfall of $47.78 billion. The recovery has been buoyed by booming exports of automobiles and vessels, coupled with the steady rebound of overseas sales of semiconductors from the latter half of the year.

What is noteworthy is the paradigm shift in the nation’s trade structure. For starters, Korea posted an $18 billion deficit in trade with China, its largest trading partner. This marked Korea’s first deficit with the neighboring country since the two nations established diplomatic relations in 1992. Except Saudi Arabia, the biggest oil seller for Korea, China has become the virtual No. 1 state with the largest amount of surplus in trade with Korea.

In contrast, Korea’s surplus in trade with the United States snowballed to $44.5 billion last year. With this, the U.S. has become the nation’s largest trade surplus provider for the first time in 21 years. In particular, exports into the U.S.
($11.29 billion) surpassed shipments into China ($10.9 billion), marking the first in 20 years and six months since June 2003. On an annual basis, the portion of shipments to China (19.7 percent) out of total exports still outperforms those into the U.S. (18.3 percent). Yet, should the current trend continue, the U.S. will surely emerge as the largest export market for Korea this year.

This has been due to the intensifying competition between the U.S. and China, rearranging global supply channels of major ingredients and products, such as semiconductors and rare minerals. An increasing number of Korean enterprises have been expanding their presence in the U.S. market, riding on the enactment of various regulatory steps against China such as the Inflation Reduction Act (IRA).

The widening deficit in trade with China has long been anticipated. Demand from China has continued to dwindle affected by economic downturn, paired with the contracted shipments of chips. Against this backdrop, the imports of battery m
aterials and minerals have continued to pick up steam. Furthermore, China has been focusing on sharpening the competitive edges of its industries, nibbling at shares of Korean companies in the Chinese and global markets. The portion of semiconductors out of the entire exports into China accounts for more than 30 percent.

Excluding chips, Korea has been registering shortfalls in trade with China since 2021. What is worrying is that China has begun efforts to strengthen the competitiveness of its domestic firms under the motto of “China Manufacturing 2025,” designed to lay the ground for domestic supply. Thus far, China has been importing intermediary goods from Korea to export end-use products. But now China is seeking to supply the intermediary goods through its own local companies.

For instance, China has been seeking to raise the self-sufficiency supply of semiconductors from the current less than 30 percent to up to 70 percent by 2025. It has also been heightening the technology prowess of its companies
in state-of-the-art industries like artificial intelligence (AI), batteries and electric vehicles. This will likely deal a blow to Korean companies.

For instance, Samsung Electronics occupied a 20 percent share of the Chinese cellular phone market 10 years ago. Now it accounts for only 1 percent, buffeted by offensives from Chinese companies.

The newly emerged trade scheme triggered by the growing conflicts between the U.S. and China will surely have a far-flung impact on the national economy. Now Seoul needs to explore new approaches to cope with the fresh trade environment. Efforts should be focused on finding locomotives to nurture exports in new areas such as bio and AI. Besides China, we should also find new export markets such as the Middle East and India with huge growth potential. Assistance should be offered to small and medium businesses so that they can play more proactive roles in boosting exports in the service areas such as beauty and fashion, for instance. More proactive diplomatic activities
are needed to tackle China’s possible move to weaponize rare minerals amid an intensifying hegemony rivalry with the U.S.

Source: Yonhap News Agency