Last year, South Korea marked a record trade surplus with the United States, while simultaneously experiencing its largest-ever trade deficit with China, showcasing a stark contrast in trade outcomes with these two major countries (G2).
According to the Regional Balance of Payments for 2023 released by the Bank of Korea on the 19th, the balance of payments with the U.S. reached a surplus of $91.25 billion last year, marking the highest level since the relevant statistics were compiled in 1998. This surplus saw a significant increase of $22.28 billion compared to the previous year’s surplus of $68.97 billion. On the contrary, the balance of payments with China was recorded as the largest-ever deficit of -$30.98 billion. The deficit was more than three times larger than the previous year’s deficit of -$8.45 billion.
Moon Hye Jung, who leads the Balance of Payments Division at the Bank of Korea, said, “The growth of the surplus with the U.S. last year stemmed from the increase in exports of goods like automobiles and an uptick in interest income, resulting in an improvement in the balance of goods and primary income.”
She elaborated, “The strong consumption and investment trends in the U.S., bolstered automobile exports, while the high-interest rate policy contributed to a record level of interest income.
Moon continued, “Both the balance of goods and primary income with the U.S. recorded their highest-ever surplus. Conversely, the widening deficit with China resulted from a significant decrease in exports to China, mainly semiconductors, which greatly increased the deficit in goods.”
It is anticipated that this divergence in trade dynamics between G2 nations will continue in the coming years.
Moon said, “The decoupling trend in the balance of payments between China and the U.S. gained momentum after the U.S. balance of payments surpassed that of China in 2020. While the surplus with the U.S. has been on the rise since 2020, the balance of payments with China turned into a deficit for the first time in 2022, and the deficit further expanded last year.”
She further noted, “The decoupling trend is projected to persist in the near term, fueled by the ongoing enhancement in semiconductor exports to the U.S. and the rise in exports of high-performance AI semiconductors.” Expanding on this point, she stated, “There is also an impact stemming from the reorganization of the global supply chain due to the widening growth disparity between the U.S. and China. However, we must monitor the situation a little longer to see if this becomes a consistent pattern.”
Last year, the balance of payments with Japan was a deficit of $16.86 billion, showing a slight alleviation compared to the previous year’s deficit of -$17.69 billion.
The slight easing of the deficit in the balance of payments with Japan was attributed to heightened travel to Japan by Koreans due to the weakened yen, resulting in a service balance deficit. However, the deficit in the balance of goods decreased due to reduced imports of chemical products and precision instruments.
The balance of payments with the European Union (EU) saw an improvement, reaching a surplus of $6.39 billion compared to the previous year’s $5.51 billion. Moon added, “This improvement in the balance of primary income is due to a decrease in dividend payments.”
The balance of payments with Southeast Asia witnessed a decline of $25.78 billion, resulting in a surplus of $51.67 billion from the previous year’s $77.45 billion. This was attributed to the reduction in exports of semiconductors, petroleum products, and chemical products, leading to a contraction in the surplus of the balance goods. The service balance also shifted into a deficit due to a decrease in transportation imports.
The balance of payments with the Middle East region was recorded as a deficit of $73.74 billion. With the decline in international oil prices, there was a decrease in raw material imports, resulting in a reduction in the deficit compared to the previous year.