An analysis from a national research institution has concluded that South Korea's trade surplus with the United States is inevitable due to the policies of the Donald Trump administration. Currently, because the U.S. imposes penalties on products produced in regions other than its own, our corporations have built factories locally, and the goods they import from South Korea are counted as U.S. imports.
In other words, the Trump administration pressured companies to build factories in the U.S., and since domestic corporations complied, South Korea is reporting a large trade surplus. It was also advised that it is necessary to convey to the U.S. that South Korea's trade surplus with the U.S. is a legitimate achievement rather than an unfair outcome.
The Korea Institute for Industrial Economics and Trade (KIET) released a report on the 11th titled "A Structural Analysis of South Korea's Exports to the U.S.: Beyond the Imbalance of Trade". KIET emphasized that the Trump administration needs to look at the structure of South Korea's trade surplus with the U.S. rather than just the figures.
Researcher Park Seong-keun of KIET stated, "Our corporations that have entered the U.S. rely significantly on Korean corporations for intermediate goods (parts) and capital goods (means of production)," adding, "Their investments in the U.S. directly contribute to increasing South Korea's exports."
Due to high labor costs and prices in the U.S., corporations entering the local market are sourcing intermediate and capital goods from South Korea. According to KIET, Korean corporations operating in the U.S. procure 59% of the products necessary for their operations domestically. As a result, the trade balance with the U.S., which was at $16.6 billion in 2020, reached $28 billion in 2022. Last year, it surged to $56 billion.
The issue is that with domestic corporations planning to enter the U.S., South Korea's trade balance may increase further. Last month, Hyundai Motor Group announced plans to establish production facilities in the U.S. across all production stages, from steel to finished vehicles, with a scale of $21 billion. LG Energy Solution also noted this month that it would expand its production base in the U.S. by acquiring a joint Michigan battery plant with General Motors (GM) for $2 billion.
Fortunately, there is a trend of increasing the proportion of local procurement. In 2020, the proportion of local procurement was 28.3%, but it has risen to 32.1% in 2023. This is interpreted as a result of a combination of the U.S.'s manufacturing preferential policies and corporations' tariff avoidance strategies.
Researcher Park noted, "Korean intermediate and capital goods have functioned as key input elements supporting U.S. manufacturing production," stating, "The trade surpluses resulting from the expansion of exports of these items are an inevitable outcome of Korea's exports contributing to the growth of U.S. manufacturing."
He also suggested, "South Korea needs to convincingly present the legitimacy of its trade surplus and its complementary structure to the U.S. and utilize this as a logical basis for trade negotiations."