A suggestion from a national research institute stated that "Korea needs to alleviate its trade concentration centered on the U.S. and China." Since the 2010s, Korea's imports from China have increased, and exports to the U.S. in certain items have expanded, heightening reliance on U.S.-China trade. This has led to an increased risk of supply chain disruptions, rising unemployment in sectors dependent on Chinese imports, targeting by U.S. protectionism, and macroeconomic instability.
Jeong Seong-hoon, a researcher at the Korea Development Institute (KDI), emphasized in a report titled "Changes in Trade Structure and Implications for Economic Security Since the 2010s," released on the 1st, that "the government needs to diversify trade while minimizing damages from import competition by strengthening related systems alongside trade policies and promotion measures."
◇ Trade balance with China turned to deficit, trade balance with the U.S. expanded surplus
Since the 2010s, Korea's trade balance with China has switched to a deficit. In contrast, the trade balance with the U.S. has expanded its surplus.
This is due to a decrease in exports to China, an increase in imports from China, and also an increase in exports to the U.S. When comparing 2012 and 2024, the share of exports to the U.S. increased by 8 percentage points, while the share of imports from China increased by 6.6 percentage points.
Changes in trade with China have been caused by the government-led industrial policies and the strengthening of manufacturing competitiveness in China. As a result, exports to China in sectors such as semiconductors and electronics, precision instruments and LCDs, machinery, and home appliances have decreased. However, imports from China have increased across most intermediate, capital, and consumer goods.
The trade surplus with the U.S. is attributed to the "U.S.-China trade war." Researcher Jeong noted that "after the U.S.-China trade war in 2018, the U.S. imposed tariffs on China, which led to an increase in exports to the U.S.," adding that "expanding investment within the U.S. and growing demand for eco-friendly vehicles have also contributed to the increased exports to the U.S."
By item, exports of automobiles and parts, semiconductors and electronics, and machinery and home appliances accounted for the increase in exports to the U.S. Notably, exports of automobiles and parts began to surge from 2021, and last year, they represented more than half of the trade surplus with the U.S.
◇ Korea, with high trade concentration, faces risks in industry, employment, and macroeconomics
KDI analyzed that Korea's trade concentration is higher than that of major countries. Compared to Japan, China, the Netherlands, France, and Germany, Korea has the highest country-level trade concentration. The item-level trade concentration also shows a high level.
KDI pointed out that this structure could pose a threat to the economy. Researcher Jeong warned that "high dependence on the Chinese supply chain could negatively impact not only key industries but also future industries." In particular, the influence of China has significantly increased in large-scale industries such as chemicals, petroleum products, primary metals, and electronic semiconductors, and China's control over supply chains is also high in future industries such as secondary batteries, robotics, and renewable energy.
Concerns are also raised about the decrease in employment in domestic manufacturing and the worsening job situation. Researcher Jeong commented that "increases in imports from China like in the U.S. may lead to unemployment and wage declines among manufacturing workers and regional economic stagnation," adding that "regions with a high proportion of manufacturing may also face economic decline and population decrease."
The increasing trend of exports to the U.S. could also be impacted by U.S. policies. In particular, in Korea's case, the trade surplus with the U.S. is concentrated in certain items, making it easy to become a target for tariffs. Recently, the U.S. has imposed or announced tariffs on automobiles and appliances, which are major export items for Korea, leading to concerns of significant impact.
KDI also pointed out that the current trade structure exacerbates macroeconomic instability. Researcher Jeong stated, "Even if exports are concentrated in specific industries, diversifying trading partners can reduce volatility," but analyzed that "Korea's exports are concentrated in specific items like semiconductors and automobiles, while reliance on the U.S. and China is high, increasing macroeconomic instability."
◇ "Accelerate CPTPP membership and strengthen trade-monitoring functions"
KDI emphasized the need for trade diversification policies that diversify trading partners and enhance surveillance functions against unfair trade. Korea has a high dependency on specific items such as semiconductors, automobiles, and shipbuilding, and it is necessary to diversify trading partners to increase stability.
Researcher Jeong proposed as solutions: ▲ conclusion of bilateral and multilateral trade agreements ▲ inducing trade transitions ▲ accelerating accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). He stated that "agreements should be expedited with countries that can contribute to stabilizing the supply chain or those that are potential demand markets for exports, while the scope and depth of existing agreements with low effectiveness should also be expanded."
Researcher Jeong stated that "support should be centered on proven policies that can diversify trade items." He suggested enhancing domestic investment incentives for strategic industry corporations and supporting workers of affected companies due to increased imports. He also added that it is necessary to strengthen the unfair trade surveillance function of the Trade Commission to ensure an immediate response system when domestic industry damage occurs.