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S. Korea-Japan trade balance by product and material

Following Japan’s imposition of export controls on materials used to manufacture domestic semiconductors and displays, government figures show that South Korea has racked up a 9 trillion won trade (US$7.63 billion) deficit with Japan in the area of parts and materials over the past five years. While the South Korean government regards the export controls as an opportunity to reduce the country’s dependence on Japan and to accelerate the domestic production of parts and materials, those issues aren’t likely to be resolved in the short term.

This year’s balance of trade per region as calculated by the South Korean Ministry of Trade, Industry and Energy on July 7 shows a deficit of US$6.7 billion with Japan in the area of parts and materials in the first half of this year. Considering that the total trade deficit with Japan during that period was US$10 billion, parts and materials alone account for two-thirds of that amount. The categories of materials with the highest deficit were chemicals and chemical products, at US$1.84 billion; while in parts, electronic components represented the largest deficit, at US$2.12 billion.

In 2018, the trade balance in the area of parts and materials amounted to a deficit of US$15.1 billion, contributing to a cumulative deficit of US$76.3 billion during the five years since 2014. South Korea’s total trade deficit with Japan last year was US$24.08 billion, which was even higher than the US$22.38 billion deficit with Saudi Arabia, an oil-producing country. The occurrence of such a huge deficit in trade with a country that doesn’t even produce oil suggests that the South Korean economy has relied upon Japanese imports for its growth instead of developing key parts and materials on its own.

Such trends weren’t only evident last year. Since normalizing diplomatic relations with Japan in 1965, South Korea hasn’t ever had a trade surplus with Japan. The cumulative trade deficit with Japan over those 54 years stands at US$604.6 billion. Japan’s export controls strike the weakest link in South Korean industry, and they’re regarded as a clear illustration of the need for South Korea to reduce its technological dependence on Japan.

S. Korea‘s trade deficit with Japan in materials and parts

“We’re reminded once again of the weakness of our industrial structure, which relied upon Japanese technology during the period of compressed growth. In order to overcome our chronic trade deficit with Japan, we ultimately need to diversify our import sources and increase our technological expertise so that we can produce parts and materials domestically,” said an industry insider.

Previous governments have also tried to tackle these issues, rendering assistance to the domestic parts, materials, and equipment industries over the past 30 years, and achieving considerable success in the automobile parts industry in the 2010s. But South Korea has been unable to catch up with Japan’s technological expertise in the areas of parts and materials for semiconductors and other products, an expertise that has been refined over the decades. The South Korean government has decided to treat Japan’s export controls as an opportunity to provide domestic companies with more support for acquiring key technologies. At the beginning of this month, the government announced it would be funneling 1 trillion won (US$847.7 million) of investment each year into the parts and materials industries, and it will also be announcing a plan sometime this month to facilitate domestic production of key parts, materials, and equipment that at the moment are largely sourced overseas.

“In addition to diversifying import sources, we’ll also be focusing on building more manufacturing facilities in South Korea and on technological development that can pave the way to domestic production,” said an official from the Ministry of Trade, Industry, and Energy.

By Hong Dae-sun, staff reporter

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