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Graphic by Kim Seung-mi

The dollar value of South Korea’s exports has reached a level of around 95% of that of Japan so far this year, statistics show. That number stood at a little over 10% as recently as 1980.

According to statistics shared Tuesday by the South Korean Ministry of Trade, Industry and Energy (MOTIE), South Korea’s cumulative export dollar value between January and May 2022 totaled US$292.9 billion, or 94.8% of the US$309.1 billion in exports recorded by Japan over the same period.

For the month of May, South Korea actually exceeded Japan at US$61.6 billion, compared with Japan’s US$56.3 billion or 7.3 trillion yen (World Trade Organization figure). WTO numbers on countries’ export performance in terms of US dollars are only available through May.

In 1980, the value of South Korea’s exports was US$17.5 billion, or just 13.4% of the US$130.4 billion recorded by Japan. Since then, the ratio has risen steadily to 35.9% as of 2000, 60.6% as of 2010, and 85.2% as of 2021. So far this year, it has exceeded 90%.

The difference in South Korea and Japan’s cumulative export value between the months of January and May grew from US$93.0 billion in 2011 to US$109.4 billion in 2012. After shrinking to US$55.7 billion last year, it was down to US$16.2 billion this year.

Despite the gap closing between them in export dollar value terms, analysts noted that there is still a large divide between South Korea and Japan in terms of overall economic strength.

“Japanese companies are far ahead of South Korea in venturing overseas, with many cases of them making direct local investments in other countries, so that even when they have a negative balance of trade, they’re earning a surplus in current accounts,” noted Sakong Mok, a research fellow in the international industry division of the Korea Institute for Industrial Economics and Trade.

“The impact on the overall [Japanese] economy from a trade deficit would not be that great,” he explained, observing that Japan has a larger domestic demand market than South Korea with exports accounting for a much smaller part of its overall economy.

Despite the fact that the export gap between the two countries is sharply narrowing, South Korea continues to demonstrate a trade deficit with Japan.

As of June 2022, South Korea’s exports to Japan stood at US$16 billion and its imports from Japan at US$28.2 billion, resulting in a deficit of US$12.2 billion. This is more than South Korea’s total trade deficit of US$10.3 billion during the same period.

This is similar to the deficit trends of US$20.9 billion in 2020 and US$24.5 billion in 2021. Still, the figures are an improvement compared to the US$36.1-billion trade deficit recorded back in 2010, which was also the largest deficit it ever recorded with Japan.

Also noteworthy is how Japan’s dependence on materials, components and equipment has gradually been declining. This seems to be the result of Japan diversifying supply chains after it imposed export restrictions to South Korea in 2019.

According to data from the MOTIE’s Materials and Components Technology Network, South Korea’s total imports of materials, components and equipment in the first half of this year amounted to US$130.67 billion, of which US$20.07 billion, or 15.4%, came from Japan.

In 2019, the first year of Japan’s export restrictions, this figure was 17.1%. This was followed by 17.2% in 2020 and 15.8% in 2021.

However, even though Japan has a trade surplus with Korea, the country is still recording an overall trade deficit. In fact, Japan has recorded a deficit for 11 consecutive months as of June.

Japan’s trade deficit for the first half of 2022 stood at 7.9 trillion yen (about US$64.4 billion), the largest ever recorded in a six-month period.

Similar to South Korea and Germany, Japan is also highly dependent on energy imports, resulting in the country being hit hard by the surge in energy prices caused by the war in Ukraine.

In the first half of the year, the rise in imports per energy source was 105.4% for crude oil, 95.0% for LNG, and 216.5% for coal.

“Although it’s clear that Japan’s economy as a whole is losing steam due to the aging population, [Japan] is still an economic powerhouse,” commented Sakong, adding that the significance of these trade gaps relative to the exports is rather limited.

“The problem of an aging population, which is considered the fundamental issue for Japan’s economy, is also something South Korea is facing,” Sakong added. “Because South Korea is actually following a more concerning trend [than Japan], it’s important we are mindful of this issue.”

By Kim Young-bae, senior staff writer

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