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South Korea’s trade patterns are shifting, with the country exporting more goods to the US than to China for the first time in almost two decades. This trend reflects Washington’s efforts to involve more allies in its supply chains and Beijing’s focus on enhancing its manufacturing self-reliance.
The Bank of Korea recently released data showing that goods exports from South Korea to China declined by nearly 10% to $122bn between 2021 and 2022. In contrast, exports to the US increased by over 22% during the same period, reaching $139bn.
This marks a significant change as South Korea, home to global trade bellwethers like Samsung, exported more goods to the US than to China for the first time since 2004. The shift can be attributed to increased US demand for Korean cars and a slump in Korean semiconductor exports to China due to a slowdown in the global memory chip market.
Among South Korea’s top 10 export partners, the US is the only country where exports have grown over the past five years. Notably, South Korean companies such as LG Energy Solution, SK On, Samsung SDI, and Hanwha Q-Cells have emerged as major foreign investors in the US semiconductor and clean tech sectors.
In contrast, China’s importance has been diminishing, especially in sectors like petroleum products, petrochemicals, steel, auto parts, and displays. The Korea International Trade Association revealed that Korean exports to China accounted for less than 20% of the total in the first three months of 2023, marking the first time since 2005.
Analysts from the Korea Center for International Finance attribute the decline in Korean exports to China to Beijing’s “Made in China 2025” strategy, which focuses on subsidizing the manufacturing of machinery and precision tools. Governor Rhee Chang-yong of the Bank of Korea noted that many Chinese businesses are now manufacturing intermediate goods that were previously exported by South Korea.
In a recent interview, South Korean trade minister Ahn Duk-geun mentioned Beijing’s arbitrary interference with businesses and its import substitution policies as key factors driving foreign companies to reduce their exposure to China. He predicted that trade between South Korea and China would undergo structural changes in the coming decade, with a shift towards lower value-added activities and increased control over the exchange of sensitive technologies.
Park Chong-hoon, head of Korea research at Standard Chartered, recognized a structural change in Korean-Chinese economic relations as Chinese companies, supported by Beijing, move up the technological value chain. However, he also emphasized that high-end semiconductor exports, which constitute a crucial part of Korean exports to China, are currently experiencing a downturn. As the global IT sector recovers, Korean exports to China are expected to pick up again.
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