South Korea’s Trade Deficit with Japan Increases in 2020

South Korea’s trade deficit with Japan increased in 2020 due to a surge in imports of semiconductor production equipment.

South Korea’s trade deficit with Japan exceeded US$20 billion again last year. This is because the former’s equipment imports from the latter substantially increased along with semiconductor exports from South Korea. Experts point out that the South Korean government needs to focus on the growth of the domestic equipment, material and component industries in order to deal with the deficit that increases along with South Korea’s exports.The deficit reached US$20.84 billion last year and US$19.16 billion in 2019, when it fell below US$20 billion for the first time since 2003. In 2020, South Korea recorded the largest trade deficit, US$30.01 billion, with the Middle East for crude oil imports and the deficit with Japan was the second-largest by region.

South Korea’s exports to Japan totaled US$25.07 billion last year, down 11.8 percent from a year ago. Its imports from Japan fell 3.5 percent to US$45.92 billion. The difference between the two percentages is because of South Korea’s dependence on Japanese equipment, materials and components.

Despite COVID-19, South Korea’s semiconductor exports increased 5.6 percent to US$99.18 billion in 2020. The performance significantly improved from the 25.9 percent decline recorded in 2019, which was caused by U.S.-China trade disputes and declines in the prices of semiconductor products. Under the circumstances, South Korea’s equipment imports from Japan showed a substantial increase. Specifically, the manufacturing equipment imports jumped 53.5 percent in 2020 after having dropped 49.7 percent in the previous year.

The reliance is not limited to the semiconductor sector. Last year, South Korea’s trade deficit with Japan amounted to over US$6.6 billion in reactor, boiler and machine parts, over US$4.4 billion in finished and semi-finished electronic devices, close to US$3 billion in optical and imaging device components, more than US$1.8 billion in plastics and plastic products, approximately US$1.8 billion in chemical products and slightly less than US$1.7 billion in steel.

In the meantime, the boycott of Japanese consumer goods in South Korea is still going on. In 2020, South Korea’s Japanese car imports dropped 37.2 percent and food and beverage imports fell 20.7 percent year on year.