While President Donald Trump has threatened tariff hikes to address trade deficits, South Korea’s exports to the United States—largely comprised of essential intermediate goods—are proving to be a critical asset to America’s manufacturing revival and economic goals. /Yonhap News

One of the key issues emerging during the early days of Donald Trump’s second term as U.S. president is the reduction of trade deficits. Since the administration began, Trump has warned trade deficit countries like Mexico, Canada, and China of impending “tariff bombs.” Although South Korea has not yet been named, experts predict it could become a target, as the country ranked as the eighth-largest contributor to the U.S. trade deficit in 2023.

However, an analysis released on Jan. 23 by the Korea International Trade Association (KITA) suggests that S. Korea’s role in the U.S. economy may provide some leverage. Of S. Korea’s $127.79 billion in exports to the U.S. last year, over half—$65.40 billion, or 51.2%—were intermediate goods. Intermediate goods, such as semiconductors, auto parts, and steel, are essential inputs for manufacturing other products. These goods are primarily used by U.S. manufacturers or Korean companies operating in the United States.

This indicates that S. Korea plays a critical role in the success of Trump’s “Make America Great Again” agenda, which focuses on reviving U.S. manufacturing. Trade experts stress the importance of emphasizing this point during negotiations, noting that S. Korea and the U.S. share a mutually beneficial supply chain relationship. They also highlight how increased investments by Korean firms in the U.S. have driven export growth.

Data from the past five years shows that intermediate goods consistently account for the majority of S. Korea’s exports to the U.S. The proportion of intermediate goods in total exports fluctuated between 50.1% and 60.4% during this period, with last year’s 51.2% continuing this trend. Among S. Korea’s top 14 export categories to the U.S. in 2024, semiconductors accounted for $10.7 billion, auto parts for $8.2 billion, and petrochemicals and steel for $4.3 billion each—highlighting the dominance of intermediate goods.

In the semiconductor sector, S. Korean companies supply advanced chips directly to U.S. firms despite exporting a significant portion of components to Taiwan and India for manufacturing. High-tech products such as DRAM chips and enterprise SSDs (solid-state drives), which are used in AI servers, are exported directly to major U.S. companies like Hewlett-Packard (HP), Dell, and Amazon Web Services (AWS).

South Korea’s deep ties to the U.S. supply chain, fueled by booming exports of intermediate goods and record-breaking investments, may offer crucial leverage as the Trump administration sharpens its focus on reducing trade deficits. Shown here, Hyundai vehicles await shipment at the export dock of Hyundai Motor’s Ulsan plant in South Korea. /News1

Additionally, S. Korean semiconductors are also expected to play a key role in the recently announced “Stargate Project.” Unveiled by Trump on Jan. 21, this initiative involves a partnership among OpenAI, SoftBank, and Oracle to build large-scale AI data centers in the U.S. and develop artificial general intelligence (AGI). A semiconductor industry official noted that these chips are critical components for U.S. industries such as smartphones, data centers, and electric vehicles, as well as emerging sectors like AI and cloud computing.

The U.S. auto parts market also highlights the growing demand for S. Korean exports. Major U.S. automakers, including Ford and General Motors (GM), as well as North America’s largest electric vehicle maker, are key customers for S. Korean suppliers like HL Mando.

The company’s revenue from North American automakers rose from 18% in 2017 to 29% in 2023. Another mid-sized Korean supplier, identified only as Company B, supplies parts to leading automakers like Lucid and Rivian and has secured contracts with Tesla, Ford, and others. An industry insider explained that S. Korean companies’ focus on diversifying supply chains and targeting the growing U.S. EV parts market has been key to their success.

Another driver of S. Korea’s export growth is the surge in S. Korean investments in the U.S. Over the past few years, S. Korean high-tech manufacturers have poured tens of billions of dollars into building new plants or expanding existing facilities, increasing exports of related equipment and components.

According to the Export-Import Bank of Korea, S. Korea’s total overseas investment reached $16.27 billion in the first three quarters of last year, with 35% directed toward the U.S. This marks a significant increase from 2018, when U.S.-bound investments accounted for 21.7%, and peaked at 43% in 2023—the highest on record.