South Korea's Record Surplus With US Adds Strain to Tariff Talks
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South Korea's current account surplus with the US surged to a record high last year, highlighting the challenge President Lee Jae Myung faces as he seeks to secure a trade deal with Donald Trump.
The surplus reached $118.2 billion in 2024, the highest on record, the Bank of Korea said Friday. The figure has increased every year since 2019, reflecting deepening trade ties — and now potential friction — with Washington.
The data serve as the latest reminder of the scale of South Korea's surplus with the US, with the Asian economy already on Trump's top 10 list of nations amplifying the US trade deficit.
Lee, who secured the presidency earlier this month after protracted political turmoil following the impeachment of Yoon Suk Yeol, must now engage in trade negotiations with a US administration that favors hardline tactics and unilateral pressure.
The two leaders were poised to talk on the sidelines of the Group of Seven summit in Canada this week, but the meeting was called off at the last minute as Trump left the event early amid rising tensions in the Middle East. Lee's nominee for prime minister said the Korean president is hoping to reach an agreement ahead of a July deadline that'll ramp up the baseline tariff rate the country faces.
Exports remain vital to South Korea's economy, equivalent to more than 40% of gross domestic product last year. Its supplies of chips, smartphones, cars and batteries are also key elements for global supply chains.
With so-called reciprocal tariff rates of 25% still on the table, the stakes for the negotiations are high.
'There's considerable uncertainty around how Trump or other nations will respond,' said Joonyoung Hur, an associate professor of economics at Sogang University. 'The impact on GDP could be significant, but it's hard to quantify with so many variables in play.'
Hur estimates that such tariffs may shrink Korea's overall exports by 2%, adding that the maximum estimated impact on GDP growth could reach 0.7 percentage point.
The US is Korea's second-largest export destination after China, accounting for 18.7% of outbound shipments worth $127.8 billion last year. The Office of the US Trade Representative said the country ran a $66 billion trade deficit with Korea in 2024, its eighth-largest bilateral gap. That was bound to draw the attention of Trump, who has framed persistent trade shortfalls as a national emergency.
The reciprocal tariffs — if reinstated at 25% as announced on the so-called Liberation Day — could slash US-bound shipments by more than half, potentially dragging down Korea's GDP by over 1% by 2030, according to Bloomberg economist Hyosung Kwon.
Even if Seoul manages to strike a deal, fallout may still follow. Closer alignment with the US could strain Korea's relationship with China, its biggest trading partner, which took in $133 billion worth of exports last year.
Sector Implications
Trade exposure underscores Korea's dependence on exports in a few key sectors. Semiconductor shipments totaled $141.9 billion in 2024, accounting for about 21% of South Korea's total exports, according to the Trade Ministry. Automobiles, the second-largest export item, exceeded 10%, while steel products neared 5%.
Autos, which make up more than a quarter of Korea's exports to the US, are particularly exposed. Hyundai Motor Co., the country's top carmaker, faces greater risk than peers with local production due to its reliance on South Korean factories. It's already made efforts to mitigate that threat, announcing in March plans for a $21 billion investment in the US for vehicle production and other projects.
Automobile exports are expected to be the most severely affected by US tariffs in both the short and long term, the BOK said in a May report. The central bank projected the nation's total goods exports to drop by 0.6%, with automobile shipments to the US sliding by as much as 4%. It also warned of longer-term risks as companies may relocate production to the US to avoid tariffs.
Semiconductors have so far avoided direct sectoral tariffs, but face rising scrutiny as Washington considers broader tech-related trade measures. The US Commerce Department is expected to announce within weeks the results of its Section 232 investigations into industries deemed critical to national security, including semiconductors.
Battery makers are also in the crosshairs. Despite building US-based joint ventures, South Korean firms rely heavily on components produced at home, exposing them to tariffs that could disrupt electric vehicle rollout plans for both South Korean and American automakers.
In May, South Korea's trade surplus with the US fell to its lowest since July 2024, even as America's deficits with other Asian economies widened — a possible sign of shifting trade flows and strategic recalibration.
South Korean companies in the automobile, semiconductor and battery industries invested billions of dollars to build out their supply chains in the US during the Biden administration in order to qualify for tax credits. Those investments are now poised to help partially shield them from Trump's tariffs, and may ultimately lead to a drop in goods exports from Korea to the US, narrowing the trade surplus.
At the same time, growing direct investment by Korean firms in the US has led to increased income from dividends and interest, contributing to a larger surplus in the primary income account. Primary income also surged to a record last year, accounting for almost 16% of South Korea's surplus with the US, the BOK said.
'The impact of US tariff policy is gradually emerging,' Kim SungJun, director at the BOK's balance of payments team, said at a briefing Friday. 'And it is expected to become more pronounced in the second half of this year.'
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