By Seongjin James Ahn
Over the last two decades the United States and South Korea have had a dynamic bilateral trade relationship. Together they have reached impressive achievements in trade growth, but have also weathered through economic crises, experienced contractions in global demand, and had their fair share of disagreements. Yet in spite of these mutual challenges and disagreements, data shows that the trade relationship has only strengthened with each passing year.
Macro Trade Highlights in Context
According to data by the U.S. Census Bureau, in the last eight years Korea has consistently remained the U.S.’s 7th largest trading partner and is on track to remain so this year. Over this period, the small nation of just 50 million people and a GDP of about $1.5 trillion has managed to exceed countries with much larger populations and economies in trade with the United States, including France, Italy, and Brazil. At times analysts draw attention to the fact that the large U.S.-Korea trade relationship is not evenly balanced, but the figures indicate that between 2004 and 2011, U.S. exports to Korea expanded by about $17.2 billion, which also consistently placed Korea as a top 7th destination for American goods just behind Germany over this period. So far in 2012, Korea is ranked 7th across the board in trade in goods with the U.S. (i.e. imports, exports, total).
In light of all the global trade rankings and superlatives that are often cited to underscore the positive economic relationship shared between two countries, it is easy to overlook how impressive U.S.-Korea trade figures truly are. To put it into context, for example: Germany, an export-driven economy like South Korea, has a GDP of about $3.6 trillion in size and is a destination for about 3.3 percent of all U.S. exported goods. Korea, on the other hand, has an economy approximately a third of the size of Germany’s and yet is still a destination for about 3 percent of U.S. exports. For a country like Korea, which is relatively smaller in almost every regard when compared to the U.S.’s other top trading partners (i.e. Canada, China, Mexico, Japan, etc.), it has quite a weighty trade relationship with the U.S. that is still only growing.
Three Attributes of U.S.-Korea Trade Growth
A deeper analysis of U.S. state-by-state trade with Korea reveals three important aspects of the growth in bilateral trade.
(See the embedded Dashboard. When a U.S. state is selected on the map, export and import trends can be viewed over the last four or five years. Additionally, the state’s top 3 export and import categories for 2011 can be viewed.)
First, the growth in U.S.-Korea trade is balanced throughout most of the fifty states. In other words, the impressive trade growth figures are not attributed to just a handful U.S. states, but rather it is an overall trend throughout the country. For example, in terms of U.S exported goods to Korea, the majority of states – with the exception of eight – increased exports between 2007 and 2011. In some cases, states even doubled the value of goods exported to Korea. Louisiana, for instance, increased exports from $921 million in 2007 to about $2.1 billion in 2011. Georgia, Idaho, West Virginia, and half a dozen others also doubled exports to Korea, while Maryland nearly tripled exports to Korea. The intra-state balanced growth strongly suggests that the expansion of a state’s trade with Korea usually does not mean a decrease in trade with Korea for another state.
Second, the growth in trade is consistent. Over past five years, state-by-state data shows that with each successive year (with the exception of 2009 during the global financial crisis) there were steady increases in the value of goods trade with Korea. With the KORUS FTA now entered into force, trade can be expected to expand further as tariff elimination schedules take effect over the next few years.
It is important to note here that in 2012 trade has been sluggish and even decreased due to the euro crisis and overall contractions in global demand. However, a recent report by the Korea Customs Service reflects data which indicates that the KORUS FTA has helped to partially offset the negative effects of the global economic slowdown. The report showed that in the first 6 months of KORUS FTA entering into force, year-on-year exports of beneficiary items for both countries actually expanded, although marginally for the U.S. On-year trade in non-beneficiary items for both countries, however, contracted.
The third aspect of U.S.-Korea trade which is attracting the attention of some analysts is the balance of trade in goods. Each year as trade in both exports and imports expand, Korea’s exports appear to be increasing at a faster rate. In 2011, for instance, Korea’s trade surplus with the U.S. was roughly $13.1 billion (or 13 percent of total bilateral trade), whereas a year earlier it was $10.1 billion (or 11.5 percent of total trade.) However, when compared to other U.S. top trading partners (i.e. China, Germany, and Japan) Korea’s trade with the U.S. is relatively balanced. In 2011, the U.S. had a trade deficit of 59 percent of total bilateral trade with China, 33 percent with Germany, and 32 percent with Japan; figures that more than triple U.S. trade with Korea.
Additionally, as the KORUS FTA settles in further and the global economy recovers, the U.S. has new opportunities to grow its side of the economic relationship with Korea. According to information collected by U.S.-Korea Connect, American businesses – both large and small, and across a range of industries and states in the U.S. – look forward to benefiting from trade and investments with Korea by taking advantage of new consumer markets in Korea.
Despite the internal, external, and bilateral challenges that have existed for the U.S.-Korea trade relationship, data shows that trade between the two partners has not failed to grow. Even now as the global economy struggles to recover, bilateral trade has maintained some level of resilience. Looking ahead, it will be interesting to see the course of the trade relationship that KORUS FTA will facilitate between the two countries.
Seongjin James Ahn is a Visiting Fellow with the Korea Economic Institute. The views expressed here are his own.