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Lee Chang-yang, the minister of trade, industry and energy, speaks during an emergency meeting of economic ministers on July 3. (Yonhap News)

“Export trends remain strong. The deficit is the result of imports increasing by a larger amount because of high oil prices.”

This is the explanation offered by the administration and the trade sector each time the numbers have indicated a trade deficit for Korea this year. But that version of events has been called into question since the announcement of export and import figures from June.

It’s not just because the trade deficit was the largest in history for the first half of a year. Export trends themselves offer clues that could be read as sending troubling signs.

A report on June export and import trends published Monday by the Ministry of Trade, Industry and Energy (MOTIE) showed export volumes totaling 14.21 million tons — down by 6.1% from June 2021. This has led analysts to suggest that export business is losing steam amid the combined effects of the war in Ukraine and a slowdown in the global economy.

As the MOTIE has explained, there is a “possibility that weight-based export figures are distorting” the reality.

Among products, there are very large differences in cost per unit. For instance, if semiconductor exports rise by US$1 billion and steel exports fall by US$1 billion, the overall export volume could show a decreasing trend. High value-added associated with products could also translate into a decline in export volumes.

There is one indicator that reduces the likelihood of distortions stemming from simple weight-based standards: the Bank of Korea export volume index, which bases its calculations on weighted values and other corrective factors.

No figure for June has yet been released, but so far in 2022, the index rose to 133.6 in March (where 100 represents 2015 levels) before dipping to 120.5 in April and 124.9 in May. Over the same period, the export dollar value index showed a similar trend, with respective levels of 154.0, 140.8, and 146.8.

In April, export volumes based simply on weight declined by 5.4%. The volume and dollar value indexes both dropped in the same month. The dip in export volumes could be viewed as reflecting an overall decline in export business conditions.

In terms of dollar value, exports continued rising, although the increase weakened in June. June export performance was calculated at US$57.73 billion, up by 5.4% for the same month in 2021. The rate of increase for exports had been consistently in the double digits since March 2021 (16.3%) — a strong performance that had continued into this year’s rates for March (18.8%), April (12.9%) and May (21.3%).

The MOTIE attributed the dip to the baseline effect. In other words, this year’s performance automatically appeared lower in comparison with the stronger performance last year, when exports for the month of June rose by a full 39.7% over their June 2020 level. Another factor is the fact that June 2022 had two fewer working days than June 2021.

The MOTIE explained that with South Korea still managing to record its highest-ever export numbers for June, the single-digit rate of increase should not be accorded too much significance. To back this up, it pointed to the daily average for exports: at US$2.62 billion, it was up by a double-digit rate (15.0%) from the US$2.28 billion calculated for June 2021.

Another standout trend in June export and import numbers was the trade deficit with China continuing for a second straight month. The deficit totaled US$1.214 billion, with exports to China calculated at US$12.966 billion, a 0.8% decrease from June 2021, and imports at US$14.18 billion, a 24.1% increase. In May, the deficit amounted to US$1.099 billion.

Through April 2022, South Korea’s balance of trade with China had shown a monthly surplus for roughly 28 straight years since the last deficit in August 1994 (US$14 million).

Cho Sang-hyun, head of the Institute for International Trade under the umbrella of the Korea International Trade Association, said, “This appears to represent the effects of the closures of major cities such as Shanghai and Beijing under China’s ‘zero-COVID’ policy.” He added that another factor may have been South Korea’s moves to diversify into the Southeast Asian markets amid criticisms over its exports and imports both being heavily focused on China.

“In terms of what sorts of effects we’ll see after the lifting of lockdown measures in major Chinese cities or whether this represents a structural change, we’re going to need to continue observing the trends over the next two or three months,” he suggested.

Before, it was observed that monthly figures on export and import trends had been showing regular growth regardless of items and regions. Since June, those explanations have vanished. In addition to the larger differences between items, negative growth has also been observed in mainstay export areas such as automobiles and ships.

Of the 15 main areas, six showed trends of increase, including semiconductors (10.7%) and petroleum products (81.7%). The nine areas showing declines included automobiles (-2.7%), ships (-36.0%), and general machinery (-11.7%).

The export figures for petroleum products and ships exemplify the large differences between areas — pointing to the current instability of the export business.

“In general macroeconomic terms, consumption and investment were negative factors in first-quarter gross domestic product, with only exports driving up the economy,” explained Joo Won, director of the economic research department at the Hyundai Research Institute.

“If even exports reach negative conditions and consumption does not revive in the second half of the year, we could end up with a situation of negative growth for the second half or for one of the quarters,” he predicted.

The export emergency has prompted a flurry of administrative activity. On Sunday, Minister of Economy and Finance Choo Kyung-ho presided over an emergency meeting of economy-related ministers, where plans were presented to boost exports this year, including increased trade finance.

A meeting of a “joint public-private export situation review council” has also been announced for July 13. During that meeting, the administration plans to work with major industry associations, trade associations, and export support organizations to assess export conditions for different industries and discuss plans for alleviating the trade deficit and boosting industry competitiveness.

By Kim Young-bae, senior staff writer

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