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In the first quarter of this year, Korea’s exports to the United States exceeded those to China for the first time since the second quarter of 2003.

Korea’s exports to the U.S. are anticipated to continue their strong performance, supported by foreign direct investment (FDI) in key manufacturing sectors, including the semiconductor industry. 

Despite the positive outlook in the short term, the analysis from the Bank of Korea suggests that there are several risks over a medium to long-term horizon (two to ten years), such as potential trade sanctions.

On 18 April, the Bank of Korea published a report titled “Assessment and Prospects for Changes in the Structure of Korea’s Exports to the United States.” The report noted that since 2020, the proportion of Korea’s exports to the U.S. in relation to its total exports has been increasing steadily. This trend culminated in the first quarter of this year, when exports to the United States surpassed those to other regions for the first time since 2003.

The robust growth in Korea’s exports to the U.S. has been linked to the agile responses of Korean firms to the strong U.S. consumption demand and their increased investments, spurred by policies such as the Inflation Reduction Act (IRA). 

Since 2020, the characteristics of Korean exports to the U.S. have included stronger ties with U.S. domestic demand, an increase in the share and variety of intermediate goods focused on emerging industries, and a stable presence of consumer goods, which have consistently accounted for 30% of exports.

The Bank of Korea predicts that the upward trajectory of Korean exports to the U.S. will persist, driven by active U.S. consumption and investment. This dynamic benefits not only Korea’s direct exports to the U.S. but also its indirect exports through China and ASEAN countries. 

Furthermore, increased FDI in manufacturing is likely to boost exports to host countries, with the impact of Korean production in the U.S. on exports to the U.S. having risen since 2020.

However, over the medium to long term, the influence of Korean companies’ FDI in the U.S. on exports to the U.S. is expected to diminish. The U.S. industrial structure, with its high proportion of domestic intermediate goods and high production costs, poses challenges for Korean SMEs trying to enter the U.S. market, even as larger Korean corporations expand their FDI.

The possibility of U.S. trade sanctions against Korea is also highlighted in the report, given Korea’s significant trade surplus with the United States. Nam Seok-mo, head of the international trade team at the Bank of Korea, said, “In the past, the United States has imposed various trade sanctions on Korea when the country’s trade deficit with the United States widened or when U.S. public opinion changed in favor of protecting America’s own industries. In particular, the Trump administration in 2017 and 2018 pushed for renegotiation of the Korea-U.S. free trade agreement and implemented safeguards.”

To mitigate potential trade pressures from the U.S., the report suggests increasing imports of energy and agricultural products from the United States. This strategy could not only alleviate trade tensions but also enhance Korea’s energy and food security while reducing consumer prices within Korea.