South Korea’s Record Surplus With US Adds Strain to Tariff Talks

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Even if Seoul manages to strike a deal, fallout may still follow. Closer alignment with the US could strain Korea’s relationship with China, its biggest trading partner, which took in $133 billion worth of exports last year. 

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Sector Implications

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Trade exposure underscores Korea’s dependence on exports in a few key sectors. Semiconductor shipments totaled $141.9 billion in 2024, accounting for about 21% of South Korea’s total exports, according to the Trade Ministry. Automobiles, the second-largest export item, exceeded 10%, while steel products neared 5%.

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Autos, which make up more than a quarter of Korea’s exports to the US, are particularly exposed. Hyundai Motor Co., the country’s top carmaker, faces greater risk than peers with local production due to its reliance on South Korean factories. It’s already made efforts to mitigate that threat, announcing in March plans for a $21 billion investment in the US for vehicle production and other projects.

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Automobile exports are expected to be the most severely affected by US tariffs in both the short and long term, the BOK said in a May report. The central bank projected the nation’s total goods exports to drop by 0.6%, with automobile shipments to the US sliding by as much as 4%. It also warned of longer-term risks as companies may relocate production to the US to avoid tariffs.

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Semiconductors have so far avoided direct sectoral tariffs, but face rising scrutiny as Washington considers broader tech-related trade measures. The US Commerce Department is expected to announce within weeks the results of its Section 232 investigations into industries deemed critical to national security, including semiconductors.

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Battery makers are also in the crosshairs. Despite building US-based joint ventures, South Korean firms rely heavily on components produced at home, exposing them to tariffs that could disrupt electric vehicle rollout plans for both South Korean and American automakers.

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In May, South Korea’s trade surplus with the US fell to its lowest since July 2024, even as America’s deficits with other Asian economies widened — a possible sign of shifting trade flows and strategic recalibration.

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South Korean companies in the automobile, semiconductor and battery industries invested billions of dollars to build out their supply chains in the US during the Biden administration in order to qualify for tax credits. Those investments are now poised to help partially shield them from Trump’s tariffs, and may ultimately lead to a drop in goods exports from Korea to the US, narrowing the trade surplus.

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At the same time, growing direct investment by Korean firms in the US has led to increased income from dividends and interest, contributing to a larger surplus in the primary income account. Primary income also surged to a record last year, accounting for almost 16% of South Korea’s surplus with the US, the BOK said.

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“The impact of US tariff policy is gradually emerging,” Kim SungJun, director at the BOK’s balance of payments team, said at a briefing Friday. “And it is expected to become more pronounced in the second half of this year.”

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