South Korea Records Consecutive Trade Deficits with Japan as Semiconductor Imports Rise

For two consecutive months Japan has surpassed China to rank second in South Korea’s trade deficit rankings, following a narrowing deficit with China.

According to the “July 2023 Export and Import Trends” report released by the Ministry of Trade, Industry, and Energy on Aug. 13, the trade deficit with Japan has been the second highest for two consecutive months, June and July, following the Middle East region where crude oil is imported.

In June, the trade balance with Japan was -US$1.78 billion, which was US$480 million more than that with China (-US$1.3 billion). In July, the deficit with Japan was also higher at -US$1.53 billion, compared to China’s -US$1.27 billion. Based on the data from the Ministry of Trade, Industry, and Energy, it has been four months since February that Japan ranked second in trade deficit standings.

According to the Korea International Trade Association, Japan had the largest trade deficit with this country from 1983 to 2010 and again from 2015 to 2021. However, since January, there has been an explosive increase in the deficit with China, pushing Japan to a lower rank.

However, the deficit with China has been gradually decreasing, and imports of semiconductors from Japan have increased, allowing Japan to surpass China in the deficit rankings for the past two months. The deficit with China decreased from -US$3.93 billion in January to -US$1.27 billion last month, a reduction of more than threefold.

In contrast, semiconductor imports (HS 8542) from Japan increased sharply, showing US$520.3 million in June, up from US$260 million in May. Semiconductor imports in July amounted to US$360.7 million. Moreover, imports of Japanese semiconductor inspection equipment (HS 903141) also surged from US$42 million in May to US$93 million in June and up to US$96 million in July. The decline in the value of the yen is believed to have partially influenced the rise in imports of Japanese steel products.

There’s a possibility that the trade deficit with Japan might further increase if the semiconductor market recovers in the second half of the year. However, as imports of secondary battery materials, a core component of electric vehicles, from China are also expected to grow, the rankings for trade deficits in the latter half of the year are predicted to remain fluid.