South Korea reached a record trade surplus of about $44.4 billion with the United States last year, according to the Ministry of Trade, Industry, and Energy and the Korea International Trade Association on April 7. The surplus with the U.S., which stood at $16.6 billion in 2020, has shown a steady increase to $22.7 billion in 2021 and $28 billion in 2022, surpassing the $40 billion mark for the first time last year.
The surge in surplus is attributed to robust exports to the U.S., marking it as South Korea’s largest trade surplus partner in 21 years since 2002.
The trend of a trade surplus with the U.S. continues this year. In December last year, South Korea’s exports to the U.S. exceeded those to China, positioning the U.S. as South Korea’s top export market. While some analysts speculated that this shift might be temporary due to China’s economic slowdown, exports to the U.S. continued to outpace those to China in February and March of this year, solidifying the U.S. as South Korea’s largest export market.
The boom in exports to the U.S. and the slump in exports to China stem from changes in the global environment, such as the restructuring of supply chains amid U.S.-China strategic competition and the U.S.’s inward-looking trade policies, represented by the Inflation Reduction Act (IRA).
Automobiles, constituting about 30% of total exports to the U.S., have found a workaround through the IRA by commercial lease sales that can receive subsidies exceptionally, despite the act primarily benefiting locally produced vehicles.
South Korean battery companies, expanding into North America in response to the IRA, have begun to increase local production, boosting exports of secondary battery materials, including cathode materials.
With companies in high-tech industries such as semiconductors competitively building large-scale production facilities in the U.S., exports of machinery and equipment to fill the factories are also on the rise.
Consequently, the trade surplus with the U.S. in the first quarter of this year reached $13.26 billion, an 86% increase year-on-year from $7.14 billion. If this trend continues, this year’s trade surplus with the U.S. is expected to break the all-time high record.
Amid discussions about the potential return of former U.S. President Donald Trump to the White House, concerns have emerged that the significantly increased trade surplus with the U.S. could become a point of “trade pressure” against South Korea.
“Trump doesn’t like countries that have a trade surplus with the U.S.,” said Victor Cha, senior vice president for Asia and Korea Chair at CSIS, in a meeting with South Korean journalists in Paris, France, last month. “Since South Korea’s trade surplus with the U.S. is $50 billion, he would impose tariffs on South Korea.”
This article was originally published on April 7, 2024.
