Korea’s share of global export drops to lowest since financial crisis on chips

[Photo by MK DB]

Korea’s share of the global exports has plunged to their lowest levels since the global financial crisis in 2008, driven by sluggish semiconductor demand and increasing competition from Taiwan and China.

According to an analysis of trade data from the World Trade Organization (WTO) by the Maeil Business Newspaper released on Sunday, Korea’s goods exports accounted for 2.74 percent of the global market last year, the lowest since 2008 when the figure stood at 2.61 percent. Korea’s share of global exports has been on a downward trend since hitting 3.23 percent in 2017, thanks to booming semiconductor, ships and steel industries back then.

The decline in Korea’s share of the global exports is largely attributed to weak global sales in industries that have traditionally been Korea’s strengths. Exports of vessels fell 57 percent to $18.19 billion last year from $42.36 billion in 2017. During the same period, shipment of wireless communication devices dropped to $17.24 billion from $22.08 billion and those of displays fell to $21.15 billion from $27.38 billion.

The decline in Korea’s overall share of the global exports is also affected by the declining chip exports. Korea’s semiconductor shipment hit $129.23 billion last year, from $97.93 billion in 2017. However, the share of chips among Korea’s total exports has been under 20 percent after hitting 20.9 percent in 2018, even though it rose to 18.9 percent in 2022 compared with 17.3 percent in 2019. The share plummeted to 13.6 percent of Korea’s total exports in the first quarter this year.

The biggest variable for the nation’s exports is semiconductors. Experts say that a recovery in exports is possible after the semiconductor industry hits bottom and rebounds. The industry is projecting demand for chips to rebound sometime during the latter half this year, seeing chip prices are at a bottom now following Samsung Electronics Co.’s recent announcement to cut production.

While Korea’s exports are stagnant, Taiwan and China are increasing their exports, taking some of Korea’s share. Over the past five years, China’s share of global exports has increased to 14.43 percent from 12.76 percent. During the same period, Taiwan’s exports grew to 1.79 percent from 1.92 percent.

[Photo by MK DB]

Experts point out that products manufactured in Taiwan and China now offer quality comparable to Korean products due to their aggressive investment in highly competitive areas, including the information and communications technology sector. To compete with its neighbors, experts say Korea should diversify its range of export industries to include such fields as biological sciences and batteries.

“The U.S. has taken measures to curb China’s exports since the Trump administration, but those have rather made China’s prices more competitive and increased its global export volume,” said Cheong In-kyo, a professor of international trade at Inha University.

Another trade expert notes the narrowing gap between Korea and its neighboring countries in terms of technology. “The technology gap between China, Taiwan and Korea is decreasing, especially in the electronics sector,” said Professor Sung Han-kyoung at University of Seoul.

Other macroeconomic factors, including investment and consumption, are not assisting Korea’s overall sluggish exports. According to data from the Bank of Korea, facility investments have been projected to fall by 3.1 percent this year, widening 2.0 percent drop in 2022. Private consumption is also expected to grow by 2.7 percent this year, while it grew by 4.7 percent last year, playing a key role in supporting the economy.

Foreign investment is also static. Data from the Ministry of Economy and Finance and the Ministry of Trade, Industry, and Energy showed that a record $59.13 billion flowed out of the country last year. The net outflow of investment funds is calculated by subtracting foreign direct investment from outward direct investment. The larger the figure, the more foreign investment funds have left Korea.

“While the U.S. and Japanese governments are actively encouraging businesses to ‘reshore’ so that their businesses overseas can return home, in Korea, corporate funds continue to flow out of the country, causing economic activity to contract and blocking the transfer of advanced technologies,” said Kim Jung-sik, professor emeritus at Yonsei University. “The government should significantly ease regulations so that businesses here can better compete with major industrial clusters overseas, such as Silicon Valley.”

“The U.S. and other countries are keen to attract overseas companies, but in Korea, corporate funds are leaving the nation due to delays in labor reform and relatively high minimum tax rates,” said the head of economic investigation at the Federation of Korean Industries. “A taxation framework that can compete with major countries and the pursuit of labor reform will be necessary.”