South Korea's trade surplus with U.S. will shrink, exporters say

South Korea's record $55.6 billion trade surplus with the U.S. in 2024, a 25% increase from 2023 driven by car exports, is expected to gradually narrow due to continued South Korean investment in the U.S., according to the Korea International Trade Association (KITA). KITA argues the surplus isn't due to unfair practices, but rather substitutions of Chinese products, increased U.S. demand, and structural import changes; this comes as Washington pressures Seoul to address the trade imbalance following an agreement to lower tariffs by July 8.

Analysis

South Korea's trade surplus with the United States reached a record $55.6 billion in 2024, marking a 25% increase from the previous year, primarily driven by robust car exports. The Korea International Trade Association (KITA) anticipates this imbalance will gradually diminish due to sustained South Korean direct investment in the U.S. market; notably, 46.8% of U.S. imports from South Korea in 2024 were intermediate goods supporting these investments. This development occurs amidst U.S. pressure on Seoul to address the significant trade imbalance, with discussions underway to finalize a trade package aimed at lowering tariffs by July 8. KITA contends that the surplus is not a result of unfair trade practices, attributing $27.7 billion of the $36.9 billion increase over the past three years to factors such as the substitution of Chinese products within U.S. supply chains, heightened U.S. demand, and structural shifts in U.S. import patterns. The situation presents a mixed outlook, with strong export performance for South Korea juxtaposed against potential trade policy adjustments stemming from U.S. concerns.

Key Decisions for Investors

• Investors should closely monitor the progress and outcome of US-South Korea trade negotiations, particularly the tariff reduction package expected by July 8, for potential impacts on sectors like automotive and electronics with significant bilateral trade exposure.
• Consider evaluating South Korean companies that are expanding investments in the U.S., as this trend is presented as a key factor in the anticipated moderation of the trade surplus and could signal strategic resilience and market access benefits.
• Analyze companies poised to benefit from ongoing U.S. supply chain diversification from China, as substitutions are cited as a significant contributor to South Korea's current export strength to the U.S., while also being mindful of the projected gradual easing of the overall trade imbalance.