Korea, Taiwan Export Disruption Concerns... Tense Industry Sector

Significant Burden on Trade with Greater China Region Including China, Taiwan, and Hong Kong

[Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Hyunseok Yoo, Sejong=Dongwoo Lee] As China announced military exercises in the sea and airspace surrounding Taiwan in protest of Nancy Pelosi, Speaker of the U.S. House of Representatives, visiting Taiwan, South Korea faces significant burdens in trade with Greater China regions including China, Taiwan, and Hong Kong.

On the 4th, the industry noted that China is conducting military exercises effectively blockading Taiwan in the surrounding sea and airspace until the 7th, which could disrupt trade with Taiwan. According to the Korea International Trade Association, the trade volume with Taiwan in the first half of this year totaled $28.289 billion, a 28.2% increase compared to the same period last year ($22.061 billion). Although Taiwan accounts for only 4% of South Korea’s total trade, it ranks sixth among all trading partners after China, the U.S., Vietnam, Japan, and Australia. The trade balance recorded a surplus of $529 million, with trade activity recovering since last year after a slowdown due to COVID-19.

Particularly concerning is that trade between South Korea and Taiwan is concentrated in semiconductors. In the first half of this year, South Korea’s exports of memory semiconductors to Taiwan amounted to $2.152 billion, the largest share among export items. While Taiwan is strong in foundry (semiconductor contract manufacturing), it depends on Korean companies such as Samsung Electronics and SK Hynix for memory semiconductors like DRAM and NAND flash. Additionally, global IT companies and component manufacturers have production bases concentrated in Taiwan, so if military exercises in Taiwan’s sea and airspace become frequent and prolonged, there is concern about potential disruptions to the supply chain for semiconductors and IT devices.

In fact, as China announced military exercises around Taiwan, changes have occurred in passenger and cargo flights passing through Taiwan, making logistics disruption concerns a reality. For flights to Southeast Asia, Korean Air and Asiana Airlines have prepared alternatives by rerouting flights to avoid Taiwan’s airspace. Flight schedules to Taiwan have also started to change. Asiana Airlines operated flights departing on this day three hours earlier, and for flights scheduled from the 5th to the 7th, decisions on operation will be made one day prior according to announcements from the Ministry of Land, Infrastructure and Transport.

An industry official said, "Most Korean memory semiconductors exported to Taiwan are transported by air, so if the air routes are blocked, exports will be disrupted." The Trade Association stated, "So far, no direct damage to export companies has been reported due to China’s large-scale military exercises, but if the military demonstrations are prolonged, export delays and other damages to some companies could increase, so the situation is being closely monitored."

The U.S. push to block advanced semiconductor investments in China and promote the so-called ‘Chip 4 Alliance’ including Taiwan, South Korea, and Japan also poses a burden for South Korea. Especially, Korean companies operating semiconductor production plants in China cannot avoid being cautious amid U.S.-China tensions.

Already, South Korea’s trade balance with China has been in deficit for three consecutive months for the first time in 30 years, indicating instability in trade with China. If trade with China and the Greater China region, including exports to China, is disrupted, it is expected to inevitably impact South Korea’s overall trade balance. Professor Ingyo Jung of Inha University’s Department of International Trade said, "Nancy Pelosi’s visit to Taiwan will accelerate the U.S.-China decoupling, especially in advanced technology sectors, and South Korea is expected to face significant damage in exports to China in advanced industries."

This content was produced with the assistance of AI translation services.