Korea's climb in U.S. trade deficit rankings for H1 sparks concerns of retaliation

The United States' trade deficit with Korea came to $34.08 billion in the first half of 2024, raising concerns that a win for former President Donald Trump might mean retaliatory policies.

Republican presidential candidate former President Donald Trump speaks at the 2024 Republican National Convention in Milwaukee on July 18, 2024. In his speech, Trump said that the United States would take over the auto industry again. [AP/YONHAP]

The United States has logged a higher trade deficit with Korea than with Japan for the first time ever, due mainly to an increase in U.S.-bound exports from Korea such as cars.

While the jump in exports is an occasion to celebrate, experts worry that this may pose a risk of tighter tariffs should former President Donald Trump, who has been vocal about reducing the United States' trade deficit, be reelected come November. The country's trade deficit with Korea was recorded at $34.08 billion for the first half of 2024, more than the $34.04 billion with Japan, according to data from the United States Department of Commerce published Wednesday and analyzed by the Joongang Ilbo, an affiliate of the Korea JoongAng Daily, with the Korea International Trade Association (KITA).

This is the first time Korea has ever surpassed Japan in the U.S. trade deficit ranking. Korea was behind Japan from January to May but pulled ahead in June, ultimately coming in sixth after Ireland.

Korea ranked sixth among the U.S.'s biggest trade deficits by country in the first half of 2024. [LEE JEONG-MIN]

According to KITA, Korea climbed to the No. 9 and No. 8 spots in 2022 and 2023, respectively, breaking into the top 10 after coming in at 14th in 2021. For this year’s January-May period, Korea surpassed Canada to take the No. 7 spot before also leapfrogging Japan. The United States recorded a $127.65 billion trade deficit with China, followed by Mexico, Vietnam, Germany and Ireland.

The rise in the trade deficit was largely influenced by the increase in Korean exports to the United States. U.S.-bound shipments during the first half of 2024 were worth $64.3 billion, 16.8 percent higher on year. The total surpassed the value of exports from Korea to China, which came in at $63.41 billion.

On the other hand, imports of U.S. goods and services dropped by 3.1 percent. This led to Korea recording $28.72 billion in profit from trade between January to June, a 56.7 percent on-year increase and the highest amount recorded for that period. The total recorded by U.S. and Korean authorities are not the same due to differences in time zones and the calculation systems for freight and insurance rates.

Notably, Korean automobile exports jumped, largely thanks to the popularity of eco-friendly and high-value added cars. The United States’ continued trade war with China that shuts out the East Asian country from its supply network for chips and EVs as well as power grids, communication networks and port infrastructure has also contributed to the boost in Korea’s exports.

“Cars are well-priced in the U.S. market, making it advantageous for Korea,” said Shin Yoon-sung, a researcher at the Korea Institute for Industrial Economics & Trade. “The weaker won has also positively impacted [the rise in] exports,” Shin added.

Shipping containers are stacked at Busan Port in August. [YONHAP]

The rise in Korea’s ranking among the United States' biggest trade deficits has been met with positive appraisals and concerns alike from experts. The increased competitiveness of Korean products in the U.S. market is one such glowing assessment.

“It seems to be a positive outcome in that Korea’s product portfolio has expanded to include not only cars but also semiconductors and general machinery, and it has maintained its competitive edge,” said Jang Sang-sik, head of trade trend analysis at KITA.

“It also indicates that Korea has established itself as an important partner under the current Biden administration’s industrial strategy,” Jang added.

Vice President Kamala Harris, left, on Aug. 7, 2024 and Republican presidential candidate former President Donald Trump on July 31, 2024 [AP/YONHAP]

The problem is how this dynamic will change should Trump win the election in November. It is highly possible that he will try to rein in business with countries the United States has a trade deficit with in the name of protectionism. The former president said in his speech at the Republican National Convention that the country will “take over the auto industry again.”

“We will not let countries come in, take our jobs and plunder our nation. We’ve lost so many jobs over the years […] about 68 percent of our auto industry,” said Trump, who also proposes a 10 percent tariff on all imports.

“If Trump gets elected, his first target will be China and the European Union, but he may also look into increased tariffs for Korea’s automotive products,” said Kang Gu-sang, head of research for North America and Europe at the Korea Institute for International Economic Policy.

“We must minimize any potential disadvantage we could face by continuing to communicate with the United States’ federal executive departments,” he added.

KITA researcher Jang also says “the rise in the trade deficit could provide the United States some sort of vindication to roll out a new trade policy for Korea.”

“Though it likely won’t be to the same extent as Trump, [Democratic presidential nominee] Kamala Harris will also emphasize ‘America First’ when elected, so there is a possibility that she might raise complaints about Korea."

BY NA SANG-HYEON [kim.juyeon2@joongang.co.kr]