Excluding semiconductors, Korea’s export picture looks grim

Containers ready for export are piled up at a port in Pyeongtaek, Gyeonggi on Aug. 18. [YONHAP]

 
Korea’s exports look strong on the surface, but the picture changes once semiconductors are excluded. Analysts call it a “semiconductor illusion,” with booming chip sales masking deep weaknesses in other industries.
 
From January through July, exports rose 0.8 percent from a year earlier to $395.5 billion, according to the Ministry of Trade, Industry and Energy on Tuesday. July exports hit $60.82 billion, a record for the month and an increase of 5.9 percent. The surge came from rising demand for high bandwidth memory and higher memory prices. Semiconductor exports reached $14.7 billion in July, the highest ever for that month. Year-to-date chip exports hit $88 billion, also a record.
 
 
But outside semiconductors, exports fell. Cumulative shipments through July, excluding chips, dropped 2.5 percent from last year.
 
Of Korea’s 15 major export categories, 10 declined — including general machinery, which fell 10.8 percent, petrochemicals, down 10.9 percent and and petroleum products, down 17 percent. Only semiconductors, ships, wireless communication devices, computers and biohealth products posted growth. Even in July, which marked a monthly export record, exports excluding semiconductors dipped 0.4 percent.
 

Visitors to the semiconductor exhibition hall at the National Science Museum in Gwacheon, Gyeonggi look at explanations about the graphics processing unit (GPU) and high-bandwidth memory (HBM) structures on Aug. 7. [YONHAP]

 
Thirteen of the 15 categories — all except semiconductors, automobiles and ships — posted negative growth in July. The proportion of semiconductors in Korea’s total exports rose to 24.2 percent that month, up 4.7 percentage points from 19.5 percent a year earlier.
 
The slump has dragged on. Machinery exports have fallen for more than a year. Petrochemicals, under pressure from China’s supply glut, and steel, hit with 50 percent U.S. tariffs, have dropped for seven months straight. With China’s low-cost surge and U.S. tariff threats, a rebound outside of chips looks unlikely.
 
Some analysts argue this trend points to a deeper issue — the erosion of Korea’s overall export competitiveness. Korea was one of only three countries among the world’s top 10 exporters to see a year-over-year decline in exports from January to April, along with France and Germany, which saw 1.6 percent and 1.9 percent year-over-year declines, respectively, according to the Korea International Trade Association. China, with 6.4 percent growth, and Japan, with 6 percent growth, both saw gains during the same period.
 

Minister of Science and ICT Bae Kyung-hoon tours a semiconductor research facility at Seoul National University on Aug. 13. [NEWS1]

 
“Korea’s export sectors are highly cyclic. China is catching up in many industries,” said Chon So-ra, an economics professor at Inha University. “New industries are necessary, but Korea’s fundamentals are too weak for quick change.”
 
What is more troubling is that this year’s export environment may actually be better than next year’s. The Korea Development Institute projects export growth for goods this year at 1.2 percent, but only 0.2 percent for next year. With the anticipated disappearance of pre-tariff front-loading effects, export momentum is expected to slow significantly.
 
Tariff risk is the biggest external threat. Last week, Washington imposed new tariffs on 407 steel and aluminum products.
 
To export key items, such as home appliances and transformers, Korean companies will now have to pay 50 percent tariffs on the steel and aluminum used in those products. Should such tariff policies lead to a global economic downturn, Korea’s economy, which heavily depends on intermediate goods, could suffer further damage.
 

Vehicles ready for export are parked at a port in Pyeontaek, Gyeonggi on Aug. 7. [YONHAP]

 
Internally, regulatory uncertainty is raising red flags. Controversial bills such as the proposed revisions to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act — dubbed the “Yellow Envelope Bill” — and amendments to the Commercial Act are nearing a full National Assembly vote, stoking fears of restrictions on corporate activity.
 
“The benefits of the Korea-U.S. FTA have largely eroded, and China is closing the gap in most sectors, so a recovery in exports — apart from semiconductors — is unlikely anytime soon,” said Kang In-soo, a professor of economics at Sookmyung Women’s University. “There needs to be flexibility in handling bills like the Yellow Envelope Law, which could serve as a short-term drag on businesses.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY AHN HYO-SEONG [[email protected]]

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