For the first time in 21 years, South Korea’s exports to the United States have outstripped those to China, according to a new report from the Bank of Korea. This shift occurred in the first quarter of the year, driven by Korean companies adapting to U.S. industrial policies, including the anti-inflation bill, and increasing their investments stateside.
The report, titled “Evaluation and Outlook on Structural Changes in Exports to the United States,” notes a significant change in the composition of exports. Since 2020, there has been a growing relevance of South Korea’s exports to U.S. domestic demand. This trend is characterized by an increase in intermediate materials geared towards emerging industries, while consumer materials have stabilized at around 30% of exports.
In the short term, the bank expects South Korea’s exports to the U.S. to continue growing, supported by both direct and indirect exports through regions like China and Southeast Asia. However, the medium to long-term outlook presents challenges. The increase in exports resulting from direct Korean investments in the U.S. may taper off as American industries favor domestic production and face high local production costs. Additionally, the complexity of expanding investments in the U.S. poses hurdles for smaller Korean enterprises.
Moreover, the growing trade surplus with the U.S. could lead to trade sanctions, as has occurred in the past when U.S. domestic pressure to protect local industries has intensified. The Bank of Korea suggests that South Korea could mitigate these risks by boosting imports of American energy and agricultural products, thereby balancing trade relations and stabilizing domestic prices.
