Korean Media: The EU Becomes More Demanding, South Korean Exports Face Challenges

Last year, South Korea's total exports exceeded $700 billion for the first time in history. This is a height reached by only six countries worldwide. However, it is not yet time to celebrate. Structural problems, masked by the "semiconductor illusion," still exist, and increasing trade barriers are adding to the burden. With the U.S. tariffs and European environmental regulations taking effect this year, this year is expected to be the real "test of time."

On the 1st, according to data published by the Ministry of Trade, Industry and Energy of South Korea, the total exports for last year were $709.7 billion (about 102.7 trillion won), an increase of 3.8% compared to the previous year. Among them, due to strong demand for high-value products such as high-bandwidth memory (HBM) and rising fixed prices of storage chips, the export value of semiconductors reached $173.4 billion, an increase of 22.2% year-on-year. The share of semiconductors in the total exports was 24.4%, far exceeding the previous record (20.9% in 2018).

Notably, the overall exports increased by $26.1 billion, while semiconductor exports increased by $31.5 billion. This means that if semiconductors are excluded, the exports of other industries actually decreased by 1%. This is exactly why some analysts believe that the "semiconductor illusion" has concealed the export weakness caused by the global economic slowdown.

Professor Yang Jun-seok from the Department of Economics at Catholic University said, "Although the construction of AI data centers has led to a surge in global semiconductor demand, its profitability is indeed questionable even domestically in the United States. Overall, the export environment this year is more unfavorable than last year." Analysts point out that if the "strong semiconductor cycle" effect weakens this year, it will be difficult to find a substitute for semiconductors that can lead the ship of South Korea's "export" forward.

After semiconductors, the car industry played the role of "export hero" last year. Car exports rose 1.7% to $72 billion, setting a new historical high. Although exports to the largest market, the United States, declined due to tariff collection, it successfully diversified its markets to the European Union (EU) and the Commonwealth of Independent States (CIS). In terms of product categories, it also shifted to environmentally friendly cars and used cars. In addition, ships (32 billion dollars) and wireless communication equipment (17.3 billion dollars) showed good performance, increasing by 24.9% compared to two years ago.

The problem is that South Korea is within the scope of increasing trade barriers. A representative case is the Carbon Border Adjustment Mechanism (CBAM) being promoted by the EU. This system levies fees similar to tariffs on steel, aluminum, cement, and other products exported to the EU based on their carbon emissions. The EU has previously announced plans to expand the scope to include automotive parts, refrigerators, and other items. Starting this year, these costs must be reflected in export prices, leading to an inevitable decline in price competitiveness.

Additionally, the EU will transform the Corporate Sustainability Due Diligence Directive (CSDDD) into domestic laws of each member state starting in July. This is a major change, meaning that transactions themselves will become difficult if companies fail to meet the conditions required by the EU in areas such as human rights and the environment. Park Sang-jo, director of the Institute of International Trade and Commerce at the Korea Trade Association, pointed out, "Variables such as the Supreme Court ruling on the U.S. International Emergency Economic Powers Act (IEEPA) and the amendment of China's Foreign Trade Law should not be ignored."

The pressure of tariffs also shows signs of spreading to countries outside the United States. Canada reduced the steel tariff quotas (TRQ) standards for free trade agreement (FTA) signatories, including South Korea, from last month. If the export volume exceeds 75% of the previous year's export volume, an additional 50% tariff must be paid. Mexico also raised tariffs on imported goods such as auto parts and textiles for non-FTA signatories since the start of the year.

Experts point out that diversifying export categories and markets, as well as developing high-value-added products that can lead the "post-semiconductor era," is crucial. Kim Nam-hoon, president of the Institute of Industry, said, "Ensuring the stability of core technologies, materials, components, and supply chains has become an absolute issue." Professor Heo Yeong from the Graduate School of International Studies at Sogang University suggested, "We cannot simply shout 'expand exports' as we did in the past; instead, we must develop a long-term strategy that takes into account policy changes and economic security in various countries and economies."

Fortunately, thanks to the popularity of Hallyu, K-Food and K-Beauty achieved historic highs in exports, showing good performance. Last year, the exports of agricultural and aquatic food reached $12.4 billion, maintaining positive growth for 10 consecutive years, and cosmetics exports reached $11.4 billion, an increase of 12.3% year-on-year. From the perspective of countries and regions, exports to ASEAN grew by 7.4%, achieving certain results in alleviating regional over-concentration.

Source: JoongAng Ilbo

Original: toutiao.com/article/1853277221973003/

Statement: This article represents the views of the author himself.