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US poised to replace China as Korea’s top export destination

June 10, 2024 - 15:43 By Kim Hae-yeon
A container ship belonging to SM Line, which expanded its operations between the US route Auckland and Incheon in May. (Yonhap)

South Korea's exports to the United States are likely to exceed those to China this year for the first time in 22 years, according to a joint report released Monday by Statistics Korea, the Trade Ministry, and the Ministry of SMEs and Startup.

From January to May, exports to the US amounted to $53.3 billion, approximately $610 million more than exports to China which stood at $52.69 billion. Large companies have already shifted their export trend since last year, while small and medium-sized enterprises are likely to see a reversal in their export patterns for the first time in 20 years.

If this annual trend continues, it will be the first time since 2002 that exports to the US exceed those to China. Last year, exports to the US totaled $115.71 billion, $9.1 billion less than the $124.81 billion exported to China.

However, the gap between exports to the US and China is the smallest in 19 years, since 2004 when it was $6.91 billion.

"If exports of intermediate goods like semiconductors and displays increase, China could regain its position as Korea's largest export market by the end of the year. While the US' financial situation seems relatively stable, the overall real economy is slowing down, so we need to monitor the consequences closely," said Jeon Byung-seo, head of the China Economic and Financial Research Institute.

Exports to the US increased by 5.4 percent last year, driven by automobiles and secondary batteries. Consequently, the US regained its position as Korea's second-largest export destination for the first time since 2005.

Exports to the US rose from $74.11 billion in 2020 to $95.9 billion in 2021, surpassing $100 billion for the first time in 2022, and further increased last year.

In contrast, exports to China declined for two consecutive years, from a record high of $162.91 billion in 2021 to $155.79 billion in 2022 and $124.81 billion last year, due to sluggish Chinese manufacturing.

Exports to the US by large Korean companies increased for seven consecutive years from 2016 to 2023, surging 64.9 percent in three years from $48.22 billion in 2020 to about $80 billion last year.

Such an increase was driven by higher exports of cars and general machinery, including high-yield eco-friendly cars and SUVs. In contrast, exports to China fell from $180.01 billion in 2021 to $99.71 billion in 2022, dropping below $80 billion last year.

Exports to the US by SMEs last year totaled $17.11 billion, $2.13 billion less than the $19.24 billion exported to China. However, this gap was the smallest in 20 years, since 2003.

The rise in SME exports to the US has been driven by increased exports of cosmetics, which recorded 60.5 percent, and other machinery, 288.2 percent, while exports to China have declined particularly in synthetic resins and other machinery, which fell by 1.8 percent and 38.7 percent respectively.

In a report titled "Assessment and Prospects for Changes in the Structure of Korea’s Exports to the United States" published April 18, the Bank of Korea predicted that exports to the US will continue to grow. This growth is expected to be driven by strong US consumer demand and increased investment by Korean companies in the US, spurred by policies like the Inflation Reduction Act.

However, export trends may change with China's economy showing signs of recovery. China experienced economic growth of 5.3 percent in the first quarter, exceeding market forecasts, and its exports increased by 7.6 percent year-on-year to $302.35 billion last month.