As the U.S.-China tariff war affects exports of domestic corporations, it appears that the stagnation of the domestic market will also prolong.
On the 23rd, the Federation of Korean Industries (FKI) conducted a survey of the business survey index (BSI) forecast for May among the top 600 corporations by sales, which recorded 85.0. The BSI, which rose in January (84.6), February (87.0), and March (90.8), has fallen for two consecutive months since last month (88.0).
A BSI above the baseline of 100 indicates that many corporations view economic prospects positively compared to the previous month, while a BSI below that indicates a more negative outlook. The BSI has been below the baseline for 3 years and 2 months since April 2022 (99.1).
By industry, the sense of economic deterioration is more pronounced in manufacturing (79.2) than in non-manufacturing (90.8). The manufacturing BSI is at its lowest since August 2020 (74.9) during the COVID-19 period. Non-manufacturing has also seen a decline for five consecutive months.
Manufacturing, which includes major export industries such as semiconductors, automobiles, petrochemicals, and steel, faces trade risks like the tariff war. The U.S. has decided to suspend the reciprocal tariff (25%) imposed on Korea for 90 days, but maintains the basic tariff (10%) on all imports and specific tariffs of 25% on steel, automobiles, and other items.
The uncertainty surrounding tariffs is already reflected in export performance. From the 1st to the 20th of this month, exports decreased by 5.2% compared to the same period last year. The decline in exports to the U.S. (-14.3%) was particularly notable, and exports to China and Vietnam also fell by 3.4% and 0.2%, respectively. Among the top 10 items, only semiconductor exports, which are not subject to U.S. tariffs, recorded a gain.
Concerns are also raised that the low-price offensive from China could intensify. With Chinese corporations blocked from exporting to the U.S., the domestic market could become a target for clearing stockpiles. Since the 9th, the U.S. has imposed a total tariff of 104% on China, which increased to 145% after China took retaliatory measures.
Projections from major domestic and international organizations for South Korea's economic growth rate this year were around 1.8% earlier this year, but have dropped to the mid-1% range since February and are nearing 1.0% this month.
The Korea Chamber of Commerce and Industry surveyed 2,113 domestic manufacturing corporations last month, and the most cited internal and external risks impacting business in the first half of this year were the sluggish domestic economy (59.5%). Other concerns included rising raw material prices (40.2%), tariff policies initiated by Donald Trump (34.8%), and domestic political uncertainty (21.8%).
South Korea has a relatively high dependence on manufacturing and exports compared to major countries. According to the United Nations (UN), manufacturing accounts for 28.0% of the country's total industry, surpassing Japan (20.3%), Germany (20.4%), and the United States (10.3%). The trade dependency is more than double that of the U.S., China, and Japan.