Trade Deficit Surpasses $30 Billion... Even Trusted Semiconductors Face 'Dark Clouds'

Cumulative Trade Deficit Hits $35.6 Billion... Largest Since 1956
Export 'Mainstay' Semiconductors Also Shrink... Three Consecutive Months of Decline
Trade with China Worsens... 'King Dollar' Also Negatively Impacts Trade Balance
Ministry of Industry: "Taking Trade Deficit Seriously... Full Effort to Revitalize Exports"

October 1?20 Exports Down 5.5%... Trade Deficit of 5 Billion Dollars
(Busan=Yonhap News) Reporter Son Hyeong-ju = The scene of Busan Port's Sinsundae and Gamman docks on the afternoon of the 21st of last month. Exports from the beginning of last month until the 20th decreased compared to the previous year, signaling a red light for the nearly two-year-long export growth trend. While semiconductor exports and exports to China continue to decline, imports increased compared to the previous year, raising the likelihood of a trade deficit for seven consecutive months. According to the Korea Customs Service, the export amount (provisional customs clearance basis) from the 1st to the 20th of last month was 32.41 billion dollars, down 5.5% from the same period last year. 2022.10.21
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[Asia Economy Sejong=Reporter Lee Jun-hyung] Concerns that this year's annual trade balance will turn into a deficit for the first time in 14 years since the 2008 global financial crisis are becoming a reality. The monthly trade balance has continued a 'deficit streak' for seven consecutive months this year. Semiconductor exports, which play a pivotal role in the trade balance, have also fallen into a recession. Although the government is accelerating the implementation of export promotion policies, the outlook remains bleak for trade conditions until the first half of next year.

According to the Ministry of Trade, Industry and Energy on the 1st, the cumulative trade deficit from January to October this year amounted to approximately $35.6 billion. This is the largest deficit in 66 years since trade statistics began in 1956. The Korea Institute for Industrial Economics and Trade, a government research institute, had forecast an annual trade deficit of $15.8 billion in May, but the actual deficit has already more than doubled that figure. This is the result of seven consecutive months of trade deficits from April to last month. In August, the trade deficit reached a record monthly high of $9.47 billion.

The problem is that the trade deficit trend is likely to persist long-term. The biggest cause of the trade deficit is the sharp increase in energy import costs. Since the Russia-Ukraine war in February, global supply chain instability has intensified, causing energy prices such as crude oil and gas to soar. International oil prices have recently hovered around $90 per barrel, and liquefied natural gas (LNG) prices continue to rise, showing no signs of easing. The Korea National Oil Corporation and the Korea Energy Economics Institute expect international oil prices to remain between $89 and $98 per barrel of Dubai crude from the fourth quarter of this year through the first half of next year.

Semiconductors Also Under 'Dark Clouds'

Another negative factor is the decline in semiconductor exports. Last month, semiconductor exports amounted to $9.23 billion, down 17.4% compared to the same period last year. Semiconductor exports have been in decline for three consecutive months since turning negative in August after 26 months of growth. This is largely due to weak global semiconductor demand and inventory accumulation, which have steadily driven down prices for semiconductors such as DRAM and NAND flash. In fact, the export price indices for DRAM and NAND flash have decreased for four consecutive months from June to September this year.

The outlook is not optimistic. Experts expect global semiconductor demand to remain sluggish at least until the first half of next year. Kim Yang-peng, a senior researcher at the Korea Institute for Industrial Economics and Trade, explained, "Due to increased global economic uncertainty, it is uncertain whether semiconductor exports will rebound after the first half of next year," adding, "There is also the aspect that semiconductor demand was excessively high in 2020 and last year due to COVID-19, making this year's exports appear relatively low."

Trade with China, which has served as Korea's 'dollar box,' is deteriorating. Last month, exports to China amounted to $12.16 billion, down 15.7% year-on-year. This decline is due to China's 'zero COVID' policy, which involved lockdowns in major cities, causing exports of key items such as semiconductors (-23.3%), petrochemicals (-20.5%), and general machinery (-27%) to shrink simultaneously. Exports to China have decreased for five consecutive months since June.

King Dollar 'Double Whammy'

The king dollar (global dollar strength) is also negatively impacting the trade balance. The Korea Development Institute (KDI) estimated that $6 billion of the trade deficit in the second and third quarters of this year was caused by the global dollar strength. When the dollar appreciates against all currencies, the volume of exports and imports decreases significantly, worsening the trade balance.

Meanwhile, the Ministry of Trade, Industry and Energy held the '3rd Export Situation Review Meeting' on the morning of the same day at the Korea Trade Insurance Corporation in Seoul, chaired by Ahn Deok-geun, Director-General for Trade Negotiations. The meeting was convened to discuss measures to revitalize exports as the trade deficit has continued for seven consecutive months. Representatives from industry associations in sectors such as semiconductors, automobiles, and refining unanimously agreed that export conditions would remain challenging until the end of this year. Director-General Ahn stated, "The government is taking the recent trade situation, where the trade deficit has continued and exports have turned downward, very seriously," adding, "We will spare no effort and use all available means to boost export vitality."

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