South Korea's export growth accelerated in the first 20 days of January, primarily driven by sustained strong demand for semiconductors, while auto exports showed weakness against the backdrop of increased U.S. tariffs. Data from Korea Customs Service on Wednesday showed that exports for the January 1-20 period, adjusted for working-day differences, increased by 14.9% year-on-year, higher than the revised 13.3% growth for the entire month of December. Unadjusted export value also grew by 14.9%, while imports during the same period rose by 4.2%, resulting in a trade deficit of $626 million.
Sector performance diverged significantly. Semiconductor exports surged by 70.2% compared to the same period last year, continuing the growth momentum fueled by the global investment boom in artificial intelligence and data centers. Exports of wireless communication equipment and petrochemical products also increased by 48% and 18%, respectively. The robust semiconductor exports partially offset weakness in other sectors. Auto exports fell sharply by nearly 11%, reflecting the impact of slowing global demand and higher U.S. tariffs; ship exports declined by 18%.
Economist Hyosung Kwon stated, "The strong export growth in the first 20 days of January confirms our assessment that the robust semiconductor demand, driven by the global AI investment boom, will be the primary growth engine for South Korea's exports and economy this year. Although the decline in auto and auto parts exports indicates that U.S. tariffs are having an effect, the growth in semiconductor exports is sufficient to offset this drag."
The latest data provides some basis for policymakers. This follows a landmark trade agreement between South Korea and the U.S., which set a tariff cap of 15% on imported Korean goods, with tariffs on automobiles and auto parts also being retroactively reduced to the same level since last November. Although this agreement brought tariffs down from their spring highs, they remain significantly above the levels under the previous Korea-U.S. Free Trade Agreement. For an economy where exports account for over 40% of GDP, this has raised concerns that exports could face a long-term drag.
The weakening Korean won provided a tailwind for exports. Since late June of last year, the won has depreciated by more than 8% against the U.S. dollar. While the weaker currency enhances the price competitiveness of South Korean exports in overseas markets, it also pushes up inflation, affecting the prices of consumer goods, as well as raw materials and components for manufacturers. Currently, both core inflation and headline inflation in South Korea exceed the Bank of Korea's 2% target, and the central bank has warned that sustained weakness in the won could further increase import cost pressures.
On the monetary policy front, the Bank of Korea held its benchmark interest rate steady at 2.5% for a fifth consecutive meeting last week and removed language from its policy statement suggesting potential rate cuts, effectively shifting to a neutral stance. Governor Rhee Chang-yong stated that the growth outlook faces both upside and downside risks, and the committee would await more data before deciding on its next move.
The performance of major trading partners was mixed. By export destination, exports to China grew by 30.2%, and exports to the United States increased by 19.3%. In contrast, exports to the European Union and Japan fell by approximately 15% and 13%, respectively.
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