Exports fall in May; Korea faces blow as US doubles steel, aluminum tariffs to 50%

South Korea's exports decreased 1.3 percent to $57.27 billion from a year earlier in May. After rebounding from a 10 percent fall in January, they dropped again four months later. Outbound shipments to the US and China decreased about 8 percent each.

Most analysts say that US tariffs affected South Korea's exports directly. Tariff pressure from the Donald Trump administration shows no sign of waning.

Trump imposed 25 percent tariffs on steel and aluminum imports on March 12 and raised them to 50 percent on May 30. The increased rate is effective from June 4, a day after the presidential election in South Korea. The new government in Seoul will face a difficult trade problem as soon as it launches.

According to data released by the Ministry of Trade, Industry and Energy, car exports fell 4.4 percent to $6.2 billion.

Auto shipments to the US plunged 32 percent due to tariff impacts and a local production increase in America.

Fortunately, a 37.6 percent surge in electric vehicle exports to the European Union countered the decrease in exports to the US.

Semiconductor exports expanded 21.2 percent to $13.8 billion, but chip shipments to the US and China shrank 17.6 percent and 14.6 percent, respectively.

Chip exports are expected to decline as Washington is preparing to introduce new tariffs on semiconductor imports.

The legality of Trump's controversial "reciprocal" tariffs is uncertain pending a Supreme Court ruling. The tariffs were temporarily reinstated by a US federal appeals court Thursday, a day after the US trade court initially ruled against them.

The US is likely to levy item-specific tariffs rather than global reciprocal ones. Trump's decision to double steel and aluminum tariffs to 50 percent late last month seems to be related to the legal uncertainty surrounding reciprocal tariffs.

Steel exports fell, affected by the 25 percent tariff imposed in March, and their further decrease is unavoidable due to the hike in late May to 50 percent.

Exports decreased not only in cars and steel but in several other main items produced by South Korea: petrochemicals (20 percent), displays (18 percent), secondary batteries (18.4 percent), auto parts (9.4 percent), home appliances (14.9 percent) and general machinery (5.3 percent).

These are industries where China has closely chased or caught up with South Korea. It is urgent to build up export competitiveness in these fields.

The export decline last month might be the beginning of a downward trend.

Export obstacles are piling up: The US is moving to discontinue tax incentives for plug-in electric vehicles and is preparing to levy tariffs on semiconductor and pharmaceutical products. China is intensifying its low-cost competition.

Exports propel South Korea's economy. If it fails to revive exports, it will be hard to raise its growth rate. Above all, it is urgent to develop innovative products and diversify markets.

Conditions for exports to the US are getting tougher. The US is strengthening trade protectionism, trying to build more manufacturing bases at home and raising the pressure on partners to reduce its trade deficits.

Korea is struggling against China's surging local brands in the Chinese market. China is increasingly making intermediary goods on its own, reducing its imports from South Korea.

Korean exporters should try to expand their shares in markets other than the US and China, such as the European Union, the Middle East, and Central and Southeast Asia.

With the reciprocal tariffs paused until July 8, Seoul and Washington have had working-level tariff negotiations.

The new Korean government to be launched tomorrow takes over the negotiations amid tough trade conditions. It needs to watch other countries' tariff negotiations, while proceeding with its own negotiations cautiously. The nation's competitiveness should be used as a bargaining chip in those fields where the US wants cooperation.

In the short term, it should offer various programs to help exporters minimize the impact of US tariffs. In the long run, it should facilitate industrial restructuring and make strategies to raise export competitiveness.


koreadherald@heradcorp.com