"US-China Conflict Deals Major Blow to South Korea's Exports to China"

Bank of Korea's Report on 'Evaluation and Implications of Exports to China'

Conflicts between the United States and China have been shown to negatively impact South Korea's exports to China. There is also a forecast that if Donald Trump is elected in the US presidential election at the end of the year and tariffs on China are increased, our exports and gross domestic product (GDP) could further decline.

According to the Bank of Korea's report titled "Evaluation of Exports to China Considering Supply Chain Connectivity and Implications" on the 26th, South Korea's exports to China have stagnated since the mid-2010s, and last year the trade balance showed a deficit, indicating a change in the trade structure with China.

This change is the result of a combination of short-term factors such as sluggish domestic demand in China, as well as medium- to long-term factors including China's improved industrial competitiveness and weakened production connectivity between South Korea and China due to intensified US-China conflicts.

The report particularly focused on the negative impact of US-China conflicts on South Korea's exports to China. According to the report, since the US began imposing high tariffs on Chinese imports from July 2018 to contain China, China's exports to the US have rapidly declined.

Supply chain changes caused by US-China conflicts have reduced South Korea's exports to China and export-linked production. Export-linked production is a concept encompassing all stages of intermediate goods produced in South Korea intended for final production in China. South Korea's export-linked production to China has increased by an average of 0.9% annually (relative to GDP) since 2010.

However, the report estimated that the US tariff increase on China in 2018 reduced South Korea's exports to China and export-linked production by about 3%.

Under scenarios where the US government adds further tariff increases (ranging from 25% to 100% depending on the item) or the EU (European Union) joins in, South Korea's exports to China are projected to decrease by about 3-5%.

Furthermore, if tariff increases occur as pledged by the Trump campaign, South Korea's exports to China and export-linked production are estimated to decline significantly compared to other scenarios. Under this scenario, South Korea's exports to China and export-linked production are expected to decrease by more than 6%. Additionally, China's GDP is calculated to decrease by 2.5%, and South Korea's GDP is expected to fall by about 1.0%.

Changes in production structure, such as China's enhanced competitiveness in intermediate goods and companies relocating production bases, have also contributed to the decline in South Korea's export-linked production to China. The textile and apparel sector slowed in the 1990s, chemicals and steel in the mid-2000s, and petroleum refining has been in decline since the 2020s. From 2018, export-linked production in the IT industry has noticeably decreased.

The report predicted that due to these structural factors, it will be difficult for South Korea's exports to China to show as strong performance as in the past. Choi Jun, head of the macro analysis team at the Bank of Korea's research department who authored the report, stated, "While exports to China have been recovering since the second half of last year and could be positive in the short term if China's growth trend improves, the downward pressure from changes in production structure continues, making it difficult to expect the same level of strong performance as before."

Choi emphasized, "As China is increasing its self-reliance in advanced technology sectors, our competitive industries also need to improve their level through technological innovation in response."

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