Warning lights are flashing for South Korea’s exports to China, the United States and Vietnam, the top three export destinations that account for about half of its total exports. Especially, Korea’s exports to Vietnam showed a negative growth for four months in a row from March to June this year. Besides, concerns are rising over Korea’s exports to the U.S. and China amid their ongoing trade war.
According to the Ministry of Trade, Industry & Energy, South Korea’s exports to Vietnam totaled US$27.47 billion from January to July this year, up 2% from a year ago. Yet, exports dropped for four months from March. Shipments to Vietnam fell 3.1% year on year in March, 17.5% in April, 8.9% in May and 8.7% in June.
Last year, Vietnam was the third-largest export destination for South Korea behind China and the United States, which accounted for 24.8% and 12%, respectively. South Korea’s exports to Vietnam surged 46% last year, hitting an all-time high of US$47.7 billion.
However, the situation drastically changed this year due to a plunge in South Korea’s ICT exports. Specifically, South Korea’s ICT exports to Vietnam added up to US$1.88 billion in June this year, down 11.9% from a year earlier. This is because South Korean companies produced less ICT products such as mobile phones in Vietnam, leading to a decline in exports of parts and components like semiconductor chips and displays.
“South Korean companies built or expanded a large number of product and component manufacturing facilities in Vietnam last year, causing a substantial increase in capital expenditure and component exports,” the ministry explained, adding, “The recent decline in exports can be attributed to a base effect as well.”
What is worrisome is that the sluggish exports to Vietnam may become permanent. Recently, many South Korean companies built component manufacturing facilities in Vietnam to locally produce their ICT components instead of importing those from their home country. This means the past explosive increase in South Korea’s exports to Vietnam is unlikely to repeat itself.
In the meantime, South Korea’s exports to the US totaled US$40.61 billion for the first seven months of this year, edging up 2.4% from a year ago. Yet exports fell for three months in a row from February to April due to protectionist US trade policy. Meanwhile, South Korea’s exports to China are still showing a solid growth. During the same period, the amount increased 21.9% from a year earlier to US$92.97 billion.
However, it cannot be said for sure that the growth will continue. Korea’s exports to China and the US may be negatively affected at the same time by the ongoing trade disputes between the two superpowers. “The disputes can directly affect South Korea’s intermediate goods exports and lead to a global economic slowdown South Korea cannot be free from,” the LG Economic Research Institute pointed out.