South Korea is reliant on a small number of export markets to the point of being highly vulnerable to risks such as import restrictions and trade pressures.
According to the Institute for International Trade (IIT) of the Korea International Trade Association (KITA), China, the United States, Vietnam, Hong Kong and Japan accounted for 56.5% of South Korea’s total exports last year. Korea’s reliance on the top 10 export destinations was 69.2%. The institute noted that these ratios have continued to go up since 1998.
When seen in terms of the Herfindahl–Hirschman Index, which indicates the degrees of competition and concentration in export markets, South Korea posted 954 points to be second only to Hong Kong among the world's 10 largest exporters. The index of South Korea has increased since the Asian financial crisis of 1998 whereas that of Japan began to increase in 2008 and that of Germany is showing a constant decline.
Such a high reliance is leading to typically high profits and risks. The IIT analyzed the export portfolios of South Korea, China, the U.S., Germany, Japan, the Netherlands, and France and said that South Korea’s expected rate of return and fluctuation risks are second only to those of Japan. It added that the U.S. showed a high rate of return along with low fluctuation risks, which means the U.S. is more stable in export structure than South Korea.
The institute pointed out that South Korea needs to reduce the risks while maintaining the rate of return, that is, the country needs to diversify its export markets for stable export growth.
“The THAAD conflict between South Korea and China, the U.S. quota on steel, demands for KORUS FTA revision, and so on have shown that South Korea’s export structure reliant on a handful of countries is very problematic,” the IIT pointed out, adding, “It needs to diversify its export markets by exporting more to Russia, Southeast Asia, etc.”