Korean Exports in Crisis: Can Samsung Electronics Lead the Way?

economy

Submitted2024.04.30 18:28
Edit2024.04.30 18:36
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Are you ranked 5 or 15 in the world? Korean exports at a crossroads
Korea is highly dependent on exports for some items

Focus on semiconductors, automotive, petrochemical, etc. ‘double-edged sword’
Annual exports fluctuate by KRW 100 billion depending on the business cycle

Samsung Electronics’ operating profit, which was 29 trillion won in 2016, jumped to 54 trillion won in 2017 and hit a record high of 59 trillion won in 2018. This is due to the memory semiconductor market has entered a period of great growth. This led to an increase in Korean exports. Korean exports increased from $495.4 billion in 2016 to $573.7 billion in 2017 and $604.9 billion in 2018.

In 2019, things changed. As the semiconductor boom ended, DRAM prices declined. Samsung Electronics’ operating profit fell by half to 28 trillion won compared to the previous year, and exports fell by more than 10% to $542.2 billion. Starting in 2021, the semiconductor market recovered again, and the operating profit and export of Samsung Electronics went back to 52 trillion won and $644.4 billion in 2021 and 43 trillion won and $683.6 billion in 2022, respectively. Last year, market conditions worsened again, causing Samsung Electronics’ operating profit to turn into a deficit and exports to drop to $632.2 billion.

Korean exports go through ups and downs in the semiconductor industry cycle and major trends. This is because it accounts for the largest share of exports. According to the Ministry of Trade, Industry and Energy on the 30th, the share of semiconductors in total exports was about 20% in the boom period of 2018 (20.9%) and 2022 (18.9%), and reached 15.6% last year during the recession.

This concentration increases even more when looking at the top five export items, including semiconductors, automobiles, general machinery, petrochemicals, and petroleum products. The share of the top five export products in 2018 appeared to decrease slightly from 52.5% in 2018 to 47.7% in 2020, but then rose again to 50.7% in 2023. In terms of export share, the share of the four main export markets, including China, the United States, ASEAN (Association of Southeast Asian Nations), and the European Union (EU), was ‘ make up 66.1% last year, reaching two thirds of the total. The accumulation of products and trading partners has been identified as a persistent weakness in Korean exports. Previous governments have aimed at diversification of export products and trading partners, but they have not achieved significant results. Although it is better than Japan, which is completely dependent on car products (17.1% of exports last year), there are opinions if variables appear in the main export items or main com- trading partners, that the global export ranking could quickly drop to 15th place.

Emergency lights have already been turned on for the remaining major items that support Korea’s exports, such as semiconductors, automobiles, petroleum products, general machinery, and petrochemicals. This is because a huge competition for survival and business reorganization is taking place on a global scale.

Korean exports led by ‘ban, tea, milk’… “If we don’t respond to global industrial reorganization, we will collapse.”

Competition for market share continues worldwide in semiconductors, whether they are non-memory or memory. For non-memory semiconductors, economic powers such as the United States, the European Union (EU), and Japan are competing for subsidies to attract the production facilities of global semiconductor companies.

Including the United States, which implemented the Semiconductor Support Act (Chips Act) in 2022 and provides $52.7 billion (about 71 trillion won), subsidies from the EU and Japan amount to 155 trillion won. New semiconductor production facilities are being built around the world to the point that some experts are concerned about an oversupply.

China is following hard with memory semiconductors. Since 2014, China has been developing semiconductors independently by creating three national distribution industry investment funds worth a total of 542.9 billion yuan (about 100 trillion won). The DRAM market is transforming into a market focused on innovative products such as high bandwidth memory (HBM) due to the spread of artificial intelligence (AI). Korean semiconductor companies must overcome two crises at once: oversupply and intensified competition. The automotive industry is undergoing a major transition to electric vehicles. Korea is being invaded by low-end Chinese companies such as Tesla and BYD, which represent high-end models in the electric vehicle market. In the existing car market, such as hybrid cars, it competes with Japanese car makers such as Toyota and Honda.

China is rapidly surpassing the petrochemical and general machinery markets. Because they are losing out in price competitiveness with China, they cannot stand the deficit and are giving up their main products. It is noted that Lotte Group’s recent sale of its large Malaysian production plant (Lotte Chemical Titan) clearly indicates the crisis in the domestic petrochemical industry.

Excluding semiconductors from last year’s overall performance, Korea’s exports decline to $533.6 billion and its ranking falls to 13th. Without petroleum and petrochemical products, exports would drop to 15th place at $435.9 billion. If the Chinese market, the largest exporting country, is cut off, Korea’s exports will decrease to $507.4 billion and its ranking will drop to 13th.

Until a few years ago, the collapse of semiconductor exports and the loss of the Chinese market could be dismissed as far-fetched assumptions. However, looking at the recent international situation and changes in industrial structure, ‘Korean and Korean semiconductor exports without China’ is no longer an unusual assumption. In October of last year, the International Monetary Fund (IMF) chose Korea as the country that would suffer the most damage if America’s allies began to eliminate risk to reduce dependence on China. The IMF predicted that if Korea separated from China, its gross domestic product (GDP) would decrease by more than 10%.

The government is diversifying its export products by defining five promising consumer goods and seven promising items, but it is still at a preliminary stage. The export volume of five major promising consumer goods, including seafood, cosmetics, fashion apparel, household goods, and pharmaceuticals, increased from $32.4 billion in 2020 to $37.6 billion in in 2023. However, the proportion decreased from 6.3% to 5.9% last year. A senior trade authority official said, “Exporting is like growing a crop, so even if you plant the seed of investment, it takes time to bear fruit in the form of export performance. ” He said, “We must continue to improve our business structure as we prepare for changes in the structure of global trade.”

Reporters Jeong Young-hyo/Park Han-shin/Lee Seul-gi [email protected]