South Korea’s service trade deficit with the United States increased to its record level in 2016.
According to "the international balance of payments by region (provisional) in 2016" released by the Bank of Korea (BOK) on June 20, Korea’s service account deficit with the US reached US$14.28 billion last year. This figure was the largest since 1998 when the Bank of Korea began to compile statistics. The application of the average exchange rate of 1160.4 won per dollar last year will translate the amount into about 16.57 trillion won (US$14.9 billion). "Korea’s commodity surplus with the US slipped due to declining exports, mainly passenger car and steel product exports," explained Choi Jung-tae, head of the International Payment Team at the nation’s central bank.
Korea’s service deficit with the United States inflated for the second consecutive year after climbing to US$14.09 billion in 2015 after declining from US$11.1 billion in 2013 to US$ 11 billion in 2014.
In detail, Korea’s travel deficit was the highest at US$5.75 billion, and Korea’s paid US$4.59 billion in intellectual property fee to the US. Korea paid that much to the US for trips to the US, studying in the US and patent fees among others.
Korea’s transportation deficit also jumped from US$635.5 million in 2015 to US$ 1.451 billion last year. Hanjin Shipping's bankruptcy has been affected by sluggish global shipping conditions.
Last year, Korea’s current account surplus with the US including goods and services sank 5.7 percent to US$31.15 billion from 2015 (US$33.33 billion). The figure is the smallest in four years since the surplus hit US$19.04 billion in 2012.
Korea’s surplus with the US is likely to further dip this year. This is because the Korean government emphasized that it will reduce its surplus with the US in preparation for a possibility that the Trump administration will designate Korea as a currency manipulator. Already, the Korean government said it would increase the import of US raw materials such as shale gas.
Last year, Korea chalked up a big drop in its current account surplus with China, too. Korea’s current account surplus with China was US$40.72 billion, a 12.9 percent decrease from 2015 (US$46.73 billion). The surplus was the smallest in five years since it hit US$27.43 billion in 2011. There are many prospects that Korea’s exports will not be able to recover as China pushes forward with economic growth policies with a focus on its domestic market.
Korea’s commodity surplus with China was US$33.74 million, down 6.0% from the previous year and its service account surplus with China shrank 29% to US$4.08 billion.
Korea’s current account deficit with Japan rose to US$20.48 billion last year from US$19.88 billion in 2015. This was because machinery, precision equipment, and telecommunication equipment imports to Korea ballooned.
In addition, Korea’s current account deficit with the Middle East trade fell to US$26.59 billion last year from US$34.71 billion in 2015. "This is because a drop in international oil prices reduced the import of energy such as crude oil," Choi said.
In contrast, Korea’s current account deficit with the European Union last year stood at US$7 billion, down from US$ 7,470 million in 2015.