Over the past year, the Korean won has consistently hovered in the early to mid-1300s against the dollar, yet this high exchange rate has not benefited export companies as expected. A higher exchange rate typically makes Korean products cheaper abroad when priced in foreign currencies, which should favor exporters. However, in sectors such as automobiles and steel, changes in sales strategies and the expansion of local production have significantly reduced the impact of the exchange rate. While the trade balance has recorded a surplus for 10 consecutive months, the cumulative trade deficit for the past year, excluding semiconductors, reached about $100.7 billion (around 138 trillion won).
According to the Korea International Trade Association (KITA) on April 18, the automobile industry has recently seen almost no impact from exchange rate fluctuations, and sectors like steel and petrochemicals are reportedly unaffected by currency changes. “The automobile industry has recently shifted its strategy from selling large volumes at low prices to maintaining prices while increasing profits, resulting in almost no effect on exports due to exchange rate fluctuations,” explained Chang Sang-sik, head of the trade association’s analysis & forecasting department. “Industries such as steel and petrochemicals are strongly affected by market conditions and dumping from China, showing that exchange rates and exports are unrelated.” Last year, exports of steel products decreased by 8.5% to $35.2 billion, and exports of petrochemical products fell by 15.9% to $45.7 billion.
Some industries are not benefiting from the exchange rate effects due to the relocation of production bases overseas. The textile industry, once a leading export sector in South Korea, saw its exports decrease by 11.3% last year to $10.9 billion. Within this sector, the garment industry, which produces final consumer goods, has moved overseas, and domestic exports are now focused on intermediate goods such as textile materials, resulting in no boost from exchange rate effects. Similarly, the appliance sector, limited to products like washing machines and OLED TVs due to the expansion of overseas production, experienced a decline in exports, falling to $7.9 billion last year, a $100 million decrease from the previous year.
The trade balance also showed little effect from exchange rates when semiconductor exports were excluded. According to an analysis by the Federation of Korean Industries (FKI), the accumulated trade surplus was $17 billion from March last year to this March. However, without semiconductor exports, the same period showed a deficit of $100.66 billion.
Excluding semiconductor exports, the monthly trade balance over the past year has been consistently in deficit. The government reports that the trade balance has been in surplus for 10 consecutive months since turning to a $1.2 billion surplus in last June, but this is essentially a “semiconductor illusion.”
Even in June last year, when the trade balance turned to a surplus, excluding semiconductor exports would result in a $7.7 billion deficit. In March this year, including semiconductor exports led to a $4.3 billion surplus, while excluding them resulted in a $7.37 billion deficit, similar to last June’s $7.7 billion deficit. Over the past year, without the semiconductor sector, the trade balance has shown little improvement despite strong exports.
“The government talks about robust exports, but the reality is that semiconductor-related companies are doing well,” said Joo Won, head of the Economic Research Department at the Hyundai Research Institute. “It’s a stretch to say that the economy is recovering based on recent export trends.”
