Korea’s Decreased Imports Result in Second Consecutive Month of Trade Surplus in July

Korea’s trade balance posted a surplus for the second consecutive month thanks to a sharp drop in imports, mainly energy imports. Although Korea’s switch to a trade surplus has been accelerated, a rebound in exports, which have continued to decline, remains a challenge for Corporate Korea.

According to the Ministry of Trade, Industry and Energy (MOTIE) and the Korea Customs Service (KCS) on Aug. 1, Korea’s exports reached US$50.33 billion in July, down 16.5 percent from a year earlier. Its imports stood at US$48.71 billion, down 25.4 percent over the same period. With a drop in its imports eclipsing a drop in its exports, Korea’s trade balance in July posted a surplus of US$1.63 billion, or about 2.1 trillion won.

Korea posted the first trade surplus (US$1.13 billion) in 16 months in June and also enjoyed a trade surplus in July. This marked the first time that Korea’s trade balance has been a surplus for two or more consecutive months since the May 2020-November 2021 period. Its monthly trade balance has been steadily improving since January of this year. Its cumulative trade deficit for this year declined to US$24.84 billion.

However, export forecasts are still gloomy. Korea’s exports fell last month amid a flurry of negative factors including a slowdown in the semiconductor industry, lower unit prices of petroleum products and petrochemicals due to a drop in oil prices, and reverse base effect from last year’s strong performance. July was the 10th month of a drop in Korea’s exports since October 2022. There were signs of a rebound in June, when the decline narrowed to 6 percent, but within a month it reverted to a double-digit decline.

Of Korea’s 15 major export items, only three showed the growth of their exports: automobiles (15 percent), general machinery (3.2 percent), and home appliances (2.5 percent). On the other hand, exports of Korea’s number one export item, semiconductors, fell 33.6 percent while exports of petrochemicals slid 24.5 percent and exports of steel 10.2 percent. Korea’s exports to the so-called six major export markets all declined. While Korea’s exports to China (-25.1 percent) and the ASEAN (-22.8 percent) continued to struggle, exports to the U.S. and European Union also sank with a drop in exports of semiconductors and petroleum products.

An improvement in Korea’s trade balance was made mainly by a sharp drop in imports. In particular, a big role was played by a 47 percent plunge in imports of three energy sources -- oil (-45.8 percent), gas (-51.1 percent), and coal (-46.3 percent) -- which were directly affected by the Russia-Ukraine war in 2022. Excluding energy, imports of other items fell by 16.8 percent due to a drop in their unit prices. However, a steep rise in international oil prices, which exceeded US$80 per barrel for the first time in three months, is considered a future risk factor.

“Korea’s trade is likely to be balanced or post a small surplus in August amid a decline in Korea’s energy imports,” said Jang Sang-shik, head of the Trend Analysis Department at the Korea International Trade Association. “However, Korea’s exports are suffering from sluggish demand across the board, except for automobile exports, as semiconductor exports’ decline is on the rise again. Korea’s exports may return to growth after October due to base effects, but there are many variables such as exports to China and semiconductor and automobile exports.”