Korea's exports have continued to increase for three consecutive months, appearing to be 'holding up' on the surface, but the impact of tariffs on exports to the United States is becoming evident. In August 2023, exports to the U.S. reached $8 billion for the first time in two years.
While the tariff on automobiles remains at 25% instead of the level promised in U.S. tariff negotiations, uncertainties surrounding semiconductors, such as '100% item tariff announcement' and 'resumption of import regulations for equipment from China,' have emerged as the biggest variable for Korea's exports.
According to the 'August export and import trends' report released by the Ministry of Trade, Industry and Energy on the 1st, Korea's export amount last month was $58.4 billion, an increase of 1.3% compared to the same month last year. This is the highest amount recorded in any August, marking three months of growth following increases of 4.4% in June and 5.8% in July.
However, there is an analysis that the export boom in June and July was significantly influenced by 'push-out exports.' Companies hurried to reflect shipping volumes ahead of the reciprocal tariff implementation in the U.S., resulting in a positive effect. Therefore, the August figures represent the beginning of the impact from the tariffs imposed by the U.S.
Looking at August exports by item, semiconductors led the way with a record $15.1 billion (+27.1%), while automobiles ($5.5 billion, +8.6%) and ships ($3.1 billion, +11.8%) also showed growth. Despite one less working day compared to last year, the average daily export increased by 5.8% to $2.6 billion.
However, the trends by region show stark contrasts. Notably, exports to the U.S. decreased by $8.74 billion, a drop of 12.0%. This is the first time exports to the U.S. have recorded an amount in the $8 billion range since August 2023. The double-digit decrease rate has not been seen since May 2020 (29.4%) during the COVID-19 pandemic, marking 5 years and 3 months.
Exports to China, Korea's largest market, remained stable. Of the nine major regions, only ASEAN (+11.9%), the Middle East (+1.0%), and the Commonwealth of Independent States (+9.2%) recorded positive growth.
The decline in exports to the U.S. was significantly influenced by automobiles. Although Korea and the U.S. reached an agreement on tariffs on July 30, the previously agreed '15%' has not been reflected, and the tariff remains at '25%.' Concerns have emerged that the U.S. is using automobiles as leverage to exert trade pressure on Korea. Exports of automotive parts to the U.S. decreased by 14.4% compared to the previous year. Additionally, exports of steel, subject to a 50% tariff, dropped by 32.1%.
Uncertainties regarding semiconductors, which are the 'cash cow' exporting items that helped mitigate the decline in exports to the U.S. and maintain stable exports to China, are also growing. This is due to the U.S. announcing a potential tariff of up to 100% on Korean semiconductors and rescinding the verified end user (VEU) status for equipment imports into the factories of Samsung Electronics and SK hynix in China.
As a result, starting in January next year, individual permits will be required for each piece of equipment brought into the factory in China. According to the U.S. Federal Register, it is expected that more than 1,000 additional permit applications will occur annually. If approval delays become a reality, Korea's semiconductor exports may shrink due to production disruptions in China.
Seogaram, the trade policy officer at the Ministry of Trade, Industry and Energy, noted, 'If individual permits are processed smoothly, there will not be a significant difference, but if there are delays in approvals, there are concerns that it could affect the introduction of (semiconductor) equipment to factories in China.' He added, 'Tariff measures have been announced for semiconductors and pharmaceuticals, and there is a high level of uncertainty that the range of tariffs may expand or rates may change.'
However, he added, 'Regarding the repeal of VEU, the U.S. has sent a message that they will ensure it does not hinder production for Korean corporations' and assured, 'During the 120-day grace period for the repeal, we will continue to negotiate with the U.S. to prevent our corporations from experiencing production disruptions.'
The government plans to announce measures to minimize damage to small and medium-sized enterprises caused by U.S. tariff actions early this month. Minister Kim Jeongkwan stated that 'the support measures will focus on three axes: ▲short-term management support to ease burdens through domestic demand creation ▲support for market diversification to maintain export momentum ▲fundamental competitiveness enhancement of key and promising sectors.'