Korea Employers Federation: "South Korea Ranks First Among G7 in Intermediate Goods Trade... Vulnerable to Trade Disputes"

An analysis has found that South Korea has a higher proportion of intermediate goods in its exports and imports compared to the Group of Seven (G7) countries, and that its trade in intermediate goods is concentrated in certain countries and items, making it vulnerable to global trade disputes.

According to the "International Comparison of Concentration in Korea's Intermediate Goods Exports and Imports and Its Implications," released by the Korea Employers Federation on November 9, intermediate goods accounted for 67.6% of South Korea's exports and 50.5% of its imports last year.

Korea Employers Federation

Both the export and import shares surpass those of all G7 member countries, including the United Kingdom (exports 57.1%, imports 45.7%), the United States (53.6%, 41.6%), Japan (53.5%, 41.6%), and Germany (48.5%, 48.9%). The Korea Employers Federation explained that this is because South Korea specializes in industries that import materials and components, process them into intermediate goods such as semiconductors, secondary batteries, and petroleum products, and then export them.

In fact, South Korea's top three export items were all intermediate goods: memory (USD 72 billion), processors and controllers (USD 35.9 billion), and petroleum products (USD 34.7 billion). In contrast, G7 countries primarily export final goods such as automobiles (Germany, Japan), aircraft (France), and pharmaceuticals (Germany, Italy, France), or primary commodities like petroleum (United States, Canada).

Ha Sangwoo, Head of Economic Research at the Korea Employers Federation, stated, "South Korea is highly dependent on trade, and particularly more so on intermediate goods trade than on final goods. This means that, compared to major advanced countries, South Korea faces a higher risk of production disruptions if other countries impose export controls on key materials and components or if trade disputes arise between third countries."

Trade in intermediate goods is also concentrated in certain countries and items. The country concentration index for intermediate goods exports and imports was 1,007 points and 1,126 points, respectively-the second highest among G7 countries after Canada. The country concentration index indicates how much trade in intermediate goods is focused on a few countries; a higher number means greater concentration in a small number of countries.

South Korea's main export destinations are China (23.7%), the United States (14.2%), Vietnam (8.9%), and Hong Kong (6.8%). Its main import sources are China (27.7%), Japan (10.1%), the United States (9.7%), and Taiwan (8.6%).

However, the Korea Employers Federation noted that the export country concentration index has declined from 1,164 points in 2019, indicating progress in diversifying export markets. In particular, the share of exports to China fell by 4.6 percentage points, while the share to the United States rose by 3.6 percentage points. This increase is believed to be due to the expansion of direct investment by South Korea in the United States, leading to greater procurement of intermediate goods for local production.

The item concentration index for intermediate goods exports and imports was 419 points and 300 points, respectively-the second highest among G7 countries after the United Kingdom. These figures represent increases of 80 points and 89 points, respectively, compared to 2019.

The largest shares of exports were memory (15.6%), processors and controllers (7.8%), and petroleum products (7.5%), while the largest shares of imports were processors and controllers (10.2%), natural gas (9.2%), and memory (6.3%). Notably, the share of memory exports rose by 1.7 percentage points and that of processors and controllers by 2.4 percentage points over the past five years, driving the overall increase in export item concentration.

Ha emphasized, "It is essential to minimize negative effects such as export declines and domestic production disruptions caused by recent factors like U.S. tariff policies, the spread of protectionism, and U.S.-China tensions. Active measures must be taken to diversify export markets and import sources, and to strengthen technological capabilities and domestic production bases."

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