Prior to the implementation of tariffs, the pre-emptive effect became apparent, and South Korea's trade received a short-term boost: exports in July grew by 5.9% more than expected.
South Korea's export momentum remains strong in July, unaffected by the increase in tariffs.
In the month of July, South Korea's exports saw growth again, benefiting from strong semiconductor product exports, stable automobile sales, and the preemptive layout strategy taken by companies to gain advantage before the US tariffs. Customs data released on Friday showed that South Korea's exports in July increased by 5.9% compared to the same period last year, higher than the market's expected 5.1% growth rate. After adjusting for workdays, the export amount also increased by 5.9%, compared to June's increase of 6.8%. Unadjusted import amounts increased slightly by 0.7%, resulting in a trade surplus of 6.6 billion dollars.
The data released on Friday may reflect efforts by exporters to complete shipping before August 1st when the US would implement higher tariffs on South Korean goods. An agreement reached by Trump at the last minute helped South Korean manufacturers avoid the worst-case scenario. The US will impose a 15% tariff on imports from South Korea, instead of Trump's earlier threat of 25%.
Shinyoung Securities fixed-income strategist Cho Yong-gu stated over the phone, "There was indeed some demand ahead of time, especially from the US side, because companies seemed to have prepared early for possible tariff increases by making early purchases. But as the US tariffs come into effect, this demand may not continue."
The new tax rates, compared to the 10% rate implemented in recent months, still pose greater pressure on exporters. Meanwhile, automobile manufacturers will receive some relief as the 25% additional tax previously imposed when exporting to the US will be reduced to 15%. The agreement also includes South Korea's pledge to invest 35 billion dollars in the US and to purchase more US energy.
At a time of this transaction and the latest trade data release, South Korea is working to solidify its export "economic engine," which accounts for over 40% of its GDP. Last month, the South Korean government passed a 31.8 trillion won (approximately 230 billion dollars) supplementary budget to mitigate impacts on the trade-dependent economy.
Bloomberg economist Hyosung Kwon said, "With the trade agreement reached on Thursday with the US, the earlier high levels of exports are expected to reduce, and the higher US tariffs will continue to have a suppressive effect. Export growth may slow down in the coming months as temporary favorable factors fade out."
The trade agreement with the US eliminates a major uncertainty factor in future economic operations. South Korea's economy contracted in the first three months of this year, and although it has returned to growth in the second quarter, the Bank of Korea expects the economy to grow by only 0.8% this year, despite rate cuts and new fiscal stimulus measures.
In another statement, South Korea's Ministry of Economy and Industry said that the demand for high-performance chips used in artificial intelligence applications drove semiconductor exports growth, while automobile exports also increased by 8.8% due to strong demand in markets outside the US.
Jeong Woo Park, an economist at Nomura Holdings, said, "Ultimately, semiconductors and technology are the real core issues, but there isn't much content on this in the trade agreement. We'll have to wait and see how this situation develops." Some of the mentioned content involves potential tariff measures on the chip industry.
According to the Ministry of Trade, exports to China in July decreased by 3%, due to a decrease in exports of key goods such as petrochemical products and wireless communication devices. However, exports to the US increased by 1.4% as strong performances of products like semiconductors, wireless devices, cosmetics, and electrical equipment offset the decrease in exports of goods like steel and automobile components.
Cho stated, "For the semiconductor industry, the recent strong growth is largely due to increased market demand related to HBM chips, so it cannot be said that we are in a period of full prosperity at the moment. Looking ahead, global trade may slow down, and industries like automobiles, which previously did not have to pay tariffs, will now be subject to a 15% tariff, similar to Japan. This is causing concern for South Korean exporters."
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