$34.5B Vs. US$7.2B
The Institute for International Trade (IIT) of the Korea International Trade Association (KITA) released a report on February 22 and said that the United States’ trade deficit with South Korea is not US$34.5 billion but US$7.2 billion when it is calculated on an added value basis based on the World Input-Output Table for the year of 2014.
“The rate of decline resulting from the recalculation, 79.1% to be specific, is much higher than 69.3%, 65.6% and 45.1% in the case of Japan, Germany and China, and this means the South Korean government can make use of it during its trade strategy formulation in relation to the United States,” the IIT explained, adding, “At present, exports from South Korea have a value added ratio of 63.3%, lower than the United States’ 87.2%, Japan’s 78.9%, Germany’s 71.2% and China’s 82.6%.”
According to the report, South Korea imports a large quantity of raw materials and intermediate goods from abroad and assembled and processed products such as electrical and electronic products and machinery account for a large portion of its exports and these factors have led to the relatively lower value added ratio. The ratio of intermediate goods to the total exports from South Korea to the United States is 46.3%, the highest among those of major trade partners of the U.S.
The IIT went on to say that the South Korean government can make use of an ongoing increase in South Korea’s service account deficit with the U.S. and its increasing investment in the U.S. as tools for resisting the United States’ attempt for KORUS FTA renegotiation. The service account deficit increased from US$6.92 billion to US$9.39 billion between 2011 and 2015 and South Korea’s investment in the U.S. is US$6.94 billion whereas the United States’ investment in South Korea is US$3.07 billion.
“The South Korean government needs to reformulate its trade strategy related to the U.S. on an added value basis and, at the same time, it should diversify and add more value to exports from South Korea by means of an increase in the ratio of consumer goods exports, domestic development of intermediate goods such as materials and components and combination between the service and manufacturing sectors,” IIT senior researcher Kim Kyung-hoon pointed out.