South Korea's exports to the United States and Japan overtook exports to China in 2023

Description

As the West pushes to reduce reliance on supply chains from China, South Korea has moved steadily to diversify away from its neighbor as a trading partner.

In 2023 South Korea's exports to China plummeted by nearly 20 percent from the previous year, shrinking to 19.7 percent of total exports, below 20 percent for the first time in 20 years.  South Korea's exports to the United States have increased, bringing the US share of total exports to 18.3 percent. The gap between Korea's exports to the United States and its exports to China, out of the total exports, was 14.8 percent in 2018. Last year that gap fell to 1.4 percentage points, according to the latest trade data from the Korean Ministry of Trade, Industry and Energy.

Since 2007, South Korea's exports to China have been greater than that of the United States and Japan combined. But last year, South Korea's exports to the United States and Japan combined overtook exports to China for the first time since 2006.

Whether this trend reflects a fundamental shift in trade patterns remains to be seen. But these changes appear to be driven by China's own push for self-reliance and South Korea's concern about China's economic coercion. For example, when South Korea deployed its Terminal High Altitude Area Defense (THAAD) missile defense system, China retaliated by blocking Chinese tours in Korea and Korean cultural exports such as K-pop (Korean popular music) and Korean TV dramas in China.. More recently, US industrial policies, such as the Inflation Reduction Act (IRA) and the CHIPS and Science Act of 2022, have contributed to this trend by attracting almost $20 billion of Korean investment in electric vehicles (EV) and batteries in the United States, which led to a surge in exports of investment-related products from South Korea to the United States.

This PIIE Chart is adapted from Yeo Han-koo's blog post, Is South Korea de-risking?

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