US-South Korea Trade 2001-2010: A Template to Emulate?

Korea
The past ten years have seen ever increasing bilateral goods trade between the United States and South Korea. Both developed economies have successfully increased their bilateral merchandise exports while simultaneously decreasing their balance of trade. We previously reported on the passage of KORUS through the US Congress, an agreement that has since been signed into law by President Obama. It is widely expected that upon implementation of the agreement future US-Korea trade will continue to increase for both countries.

US Merchandise Exports, Imports and Balance of Trade with South Korea 2001-2011 Data Source: U.S. Department of Commerce

US Merchandise Exports to Korea

Looking back over the past decade, US exports increased from $22 billion in 2001 to almost $39 billion in 2010, an annual growth of 6 percent, and the US trade deficit shrunk from $13 billion to $10 billion, an annual decline of 3 percent. Six sectors account for nearly three-quarters all US merchandise exports to South Korea, according to the US Department of Commerce. These sectors include machinery (except electrical), chemicals, computers products, transportation equipment, agricultural products—not including livestock and livestock products—and manufactured food stuffs. Combined they made up 74 percent of all US exports to Korea.

Top US Exports to Korea 2001-2011 Data Source: U.S. Department of Commerce

The value of exports for each sector was higher in 2010 than in 2001, with the exception of computer and electronic products. Exports of industrial, agricultural, construction and mining machinery increased 150 percent from $2.6 billion in 2001 to $6.5 billion in 2010 and the state of Texas ranked Korea as its third largest export market for machinery products in 2010 after Canada and Mexico. Both machinery and chemicals—basic chemicals, rubber, and pharmaceuticals—experienced annual growth during this period of 11 percent, and agricultural products—led by coarse grains—grew by 12 percent. Korea is a major export market for Washington State with a reported 64 percent of that state’s exports to Korea consisting of agricultural products and transportation equipment.

The single largest sector of US exports were computer products—semiconductors—accounting for 24 percent of US all exports to Korea, even taking into account an annual decline of 1 percent. Brian Toohey, president of theSemiconductor Industry Association in comments praising passage of KORUS explained that “Semiconductors are America’s top exporting industry and with three quarters of semiconductors being designed and manufactured here and 82 percent of our sales outside the U.S., access to growing markets is critical for the success of our industry.”

South Korean Exports to the United States

Korean exports to the United States have increased from $35 billion in 2001 to almost $49 billion in 2010, an annual growth of 4 percent. Two industries dominate Korean exports to the United States: technology and vehicles. Computer and electronic products—communications equipment, semiconductors, and computer equipment—and transportation equipment consisting mainly of motor vehicles made up 61 percent of all Korean exports to the United States for the ten years since 2001, an annual growth of 2 and 4 percent respectively.

Top Korean Export Industries to the United States 2001-2011 Data Source: U.S. Department of Commerce

Two Korean industry exports that have declined over this period are apparel and miscellaneous manufactured commodities which respectively made up 3 and 2 percent of all South Korean exports to the United States, but have also dropped precipitously by 88 and 45 percent over the ten years. Korean apparel exports to the United States were valued at $2.2 billion in 2001, but in 2010 that total was just over $271 million, an annual decline of 21 percent. Likewise with assorted manufactured prodcuts which in 2001 were valued over $1 billion, but totalled $566 million in 2010, an annual decline of 6 percent.

Economist Fred Bergsten outlined in a recent speech that in order for the United Sates to maintain its global influence and prestige the country needs to rebalance its economy, both domestically and internationally. His prescription includes a blend of domestic economic reforms combined with a reduction in the US national debt, an increase in US exports and a decrease in the US trade deficit. This is exactly what happened over the past decade of US-Korea goods trade: a decline in the trade deficit along with an increase in exports. This may be the template for the United States to replicate with others over the next decade.