South Korea’s exports climbed again in July, driven by strong semiconductor and solid vehicle sales, and apparent front-loading by companies aiming to get ahead of an increase in US tariffs.Exports rose 5.9% in July from a year earlier, customs data showed Friday, beating a consensus estimate of 5.1% growth. On a working-day adjusted basis, exports also gained 5.9%, following a 6.8% increase in June. Unadjusted imports edged up 0.7%, resulting in a trade surplus of $6.6 billion.
Friday’s figures likely reflect efforts by exporters to ship goods before a higher tariff on US imports of Korean goods was scheduled to kick in on August 1. A last-minute agreement unveiled by President Donald Trump helped Korean manufacturers avoid the worst-case scenario. Washington will impose a 15% across-the-board tariff rate on imports from South Korea rather than the 25% duty previously threatened by Trump.
“There was some clear front-loading, especially on the US side as companies seemed to have moved early in anticipation of higher tariffs,” Cho Yong-gu, a fixed-income strategist at Shinyoung Securities, said by phone. “But with the US duties now officially taking effect, that kind of demand probably won’t continue.”The new rate still represents an increase from the 10% levy that’s been in place in recent months, putting further strain on exporters. At the same time carmakers will get some relief as a separate duty of 25% already imposed on their exports to the US will go down to 15%. The deal also includes $350 billion in Korean pledges to make invest in the US and a commitment to buy more American energy.The deal and the latest trade figures come as South Korea looks to shore up its export engine, which generates value equivalent to more than 40% of gross domestic product. The government passed a 31.8 trillion won ($23 billion) supplementary budget last month to cushion external shocks to the trade-reliant economy.What Bloomberg Economics Says…
“With a trade deal struck with the US on Thursday, front-loaded shipments are expected to ease, while elevated US tariffs remain a drag. Export growth is likely to slow in the coming months as temporary tailwinds fade.”
— Hyosung Kwon, economistThe trade agreement with the US removes a key source of uncertainty for the economy going forward. South Korea’s economy shrank in the first three months of the year, and while it returned to growth in the second quarter the central bank expects an expansion of just 0.8% this year, despite rate cuts and fresh fiscal stimulus.Demand for high-performance chips used in artificial intelligence applications drove semiconductor exports higher, while automobile shipments also rose 8.8% as markets outside the US showed solid demand, the trade ministry said in a separate statement.“In the end, semiconductors and tech are the real core issues, but there wasn’t much substance on that front from the trade deal,” said Jeong Woo Park, a Nomura Holdings economist, referring partly to threatened sectoral tariffs on chips. “We’ll have to wait and see how that develops.”Exports to China fell 3% in July due to weaker shipments of key items such as petrochemicals and wireless communication devices, while shipments to the US rose 1.4% as strong performance in semiconductors, wireless devices, cosmetics, and electrical equipment offset declines in goods including steel and auto parts, according to the trade ministry.“For semiconductors, the recent boost has a lot to do with high bandwidth memory-related demand, so I wouldn’t say we’re in a full upcycle just yet,” Cho said. “Looking ahead, a slowdown in global trade is likely, and sectors like autos, which previously faced no duties, will now be subject to a 15% tariff, the same rate applied to Japan. That’s raising concern among Korean exporters.”
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