President Trump Tariffs Hurt South Korea’s Export in May

South Korea's exports fell 13% in May, primarily due to reduced shipments to China and the US, with Industry Minister Ahn Duk-geun attributing the decline to the impact of tariff measures. While semiconductor exports rose 21.2%, overall exports were negatively impacted by US tariffs, particularly on automobiles which decreased 4.4%, and offset by a 49.6% surge in exports to Taiwan.

Analysis

South Korea's exports experienced a significant contraction in May 2024, falling 13% year-over-year to $57.27 billion, a decline considerably sharper than the 2.7% anticipated by economists. This downturn is primarily attributed to the adverse effects of broad tariff measures, particularly impacting shipments to its two largest trading partners, China and the United States, which saw a collective drop of 8 percentage points in shipments from South Korea. Industry and Trade Minister Ahn Duk-geun explicitly linked these declines to the broader impact of tariffs on the global economy. Despite this overall negative trend, the semiconductor sector demonstrated notable strength, with exports surging 21.2% on robust demand for advanced memory chips. However, this was insufficient to offset weaknesses in other key areas, such as automobile exports, which decreased by 4.4% due to US tariffs and increased US-based production by Hyundai. Regional trade patterns also showed considerable divergence: exports to Taiwan soared by 49.6%, while shipments to Southeast Asian nations fell by 13%, and exports to the European Union registered a modest 4.0% gain. It is noteworthy that on a working-day adjusted basis, South Korean exports recorded a 1.0% increase, suggesting some underlying resilience or distortion from calendar effects amidst the prevailing trade headwinds exacerbated by ongoing US tariff policies and US-China trade tensions, including threats of increased steel and aluminum tariffs.

Key Decisions for Investors

• Investors should closely monitor developments in US trade policy and US-China trade relations, as these factors are directly and significantly impacting South Korean export performance and overall global trade flows.
• Given the stark divergence between the resilient semiconductor sector (exports up 21.2%) and tariff-impacted industries like automotive (exports down 4.4%), a granular assessment of sectoral exposure within South Korean investments is warranted to identify specific vulnerabilities and opportunities.
• The significant regional re-routing of exports, exemplified by a 49.6% surge to Taiwan versus a 13% decline to Southeast Asian nations, suggests a need to re-evaluate geographic allocations and consider the evolving landscape of South Korea's key trade partnerships.
• Analysts should consider both the headline 13% export fall and the 1.0% working-day adjusted increase to gain a more nuanced understanding of South Korea's underlying trade health before making significant portfolio adjustments related to its economic outlook.