South Korea's July Exports Drop 2.2%: US and China Markets Show Weakness Amid Trade Tensions

Export Decline Signals Economic Headwinds

Did you know that South Korea's export momentum, which had been recovering since June, has hit another stumbling block? According to the Korea Customs Service, exports during July 1-20 fell by 2.2% year-over-year to $36.1 billion, marking the first mid-month contraction since May. This decline comes despite strong performance in key sectors like semiconductors, which surged 16.5% to $7.89 billion during the period. The drop is particularly concerning given that it follows a robust 9.5% increase in the first 10 days of July, suggesting that external pressures intensified as the month progressed.

The daily average export volume actually rose 4.1% when accounting for fewer working days (15.5 days versus 16.5 days in 2024), but this couldn't offset the overall negative trend. Korean exporters are increasingly feeling the pressure from multiple fronts, including new US tariffs on steel and automotive components, and intensifying price competition from low-cost Chinese suppliers in petroleum products. The situation has become so challenging that industry surveys show 92% of companies believe tariff increases above 15% would be difficult to endure.

US-Korea Trade Relations Under Strain

The relationship between South Korea and the United States has become increasingly strained under the Trump administration's trade policies. Exports to the US fell 2.1% to $6.42 billion during the July 1-20 period, continuing a troubling trend that began earlier this year. The first half of 2025 saw US-bound shipments drop 3.7% overall, marking the first half-year contraction since early 2020. This decline is concentrated in sectors targeted by President Trump's revived tariff regime, including steel, automobiles, and machinery.

Steel exports to the US have been particularly hard hit, falling 11.2% following tariff hikes to 25% in March and 50% in June. Car shipments, South Korea's top export to the US, plunged 16.8% in the first half of the year. The automotive sector's struggles are especially pronounced, with US-bound car exports declining for four consecutive months through June. Trade Minister Cheong In-kyo has warned that the impact of US tariff measures would be fully reflected in export data, leading to further declines in shipments to both the US and China. The situation has become so critical that the Korean government has established an emergency response system and pledged to provide tailored support through programs worth 234.7 billion won.

China Market Challenges Compound Problems

South Korea's largest trading partner, China, has also become a source of concern as exports dropped 5.9% to $6.88 billion during the July 1-20 period. This decline represents a continuation of the 4.6% drop seen in the first half of 2025. The reduction in China-bound shipments is largely attributed to US restrictions on semiconductor exports to China, which have disrupted downstream export routes. Kim Soo-dong from the Korea Institute for Industrial Economics and Trade notes that these restrictions have created significant challenges for Korean exporters who rely on the Chinese market.

The China export decline is particularly troubling given that the country accounts for 19.1% of South Korea's total export share, making it the largest destination for Korean goods. Community reactions on Korean forums like 더쿠 and 네이트판 reflect growing concern about the 'sandwich' position Korea finds itself in between US-China trade tensions. Many netizens express frustration that Korea is paying the price for a trade war it didn't start, with comments like '미중 갈등의 샌드위치가 된 한국' (Korea has become a sandwich in the US-China conflict) frequently appearing in discussion threads. The sentiment reflects a broader anxiety about Korea's economic vulnerability in an increasingly fragmented global trade environment.

Semiconductor Success Story Amid Broader Struggles

Despite the overall export decline, South Korea's semiconductor industry continues to demonstrate remarkable resilience and growth. Chip exports surged 16.5% to $7.89 billion during July 1-20, accounting for 21.9% of total exports, up 3.5 percentage points from the previous year. This performance builds on the sector's exceptional showing in June, when semiconductor exports reached a record monthly high of $15.0 billion. The continued strength in semiconductors reflects robust global demand for high-value-added products and rising prices in the memory chip market.

The semiconductor sector's success has become a source of national pride and economic stability for South Korea. On Korean business blogs and forums, there's widespread recognition of the industry's critical role in offsetting weaknesses in other export categories. Tistory bloggers frequently highlight how companies like Samsung and SK Hynix have maintained their competitive edge in memory chips and are expanding into high-bandwidth memory (HBM) for AI applications. The sector has benefited from the global AI boom and increased demand for data center equipment, with many industry observers noting that Korea's technological leadership in memory semiconductors provides a crucial buffer against trade headwinds. Community discussions often emphasize how the 'K-semiconductor' brand has become as important as K-pop in representing Korean excellence globally.

Automotive and Petrochemical Sectors Face Headwinds

While semiconductors shine, other key Korean export sectors are struggling with significant challenges. The automotive industry, despite a 3.9% increase in passenger car exports during July 1-20, faces mounting pressure from US tariff policies. The first half of 2025 saw automotive exports to the US decline by 16.5%, with June marking the fourth consecutive month of contraction. This trend is particularly concerning given that the automotive sector represents one of Korea's traditional export strengths, with brands like Hyundai and Kia having established strong market positions globally.

The petrochemical sector presents an even starker picture, with petroleum product exports plummeting 17.5% during the July period. Auto parts exports also declined 8.4%, reflecting broader supply chain disruptions and competitive pressures. Korean industry blogs and business forums are filled with discussions about the need for sector restructuring, particularly in petrochemicals where companies face mounting losses. The Federation of Korean Industries reports that petrochemical exports are forecast to fall 2.2% in the second half of 2025, while steel exports could decline by 5.0%. These challenges have sparked debates in Korean business communities about diversification strategies and the need to move up the value chain in manufacturing.

EU Market Provides Silver Lining

Amid the challenging trade environment, South Korea's exports to the European Union have provided a welcome bright spot. EU-bound shipments increased 3.0% during July 1-20, with the region accounting for 10.6% of Korea's total export share. This growth builds on strong performance in the first half of the year, when EU exports rose 32.6%, driven by increases in key markets like Germany (137.8%) and the Netherlands (89.8%). The automotive sector has been a particular beneficiary, with electric vehicle exports performing exceptionally well in European markets.

Korean trade analysts attribute the EU success to several factors, including base effects from weak exports in the previous year, strong electric vehicle demand, and strategic moves like KG Mobility's establishment of a European sales subsidiary. The EU market's importance has grown as Korean companies seek to diversify away from their traditional reliance on the US and Chinese markets. Vietnamese exports also showed positive momentum with a 1.1% increase, while shipments to Taiwan surged 29.9%. Korean business bloggers frequently discuss the EU as a 'third way' between the US and China, offering opportunities for Korean companies to reduce their exposure to US-China trade tensions while accessing affluent consumer markets with strong demand for Korean technology and automotive products.

Industry Outlook and Policy Responses

Looking ahead, Korean exporters face a challenging landscape with significant uncertainty surrounding trade policy developments. The Federation of Korean Industries' survey of 150 major exporters reveals that 53.3% identify US tariff policies as the biggest export risk for the second half of 2025. Overall export volume is projected to decline by 1.6% year-over-year, reversing gains seen earlier in the year. The most concerning aspect is that 92% of companies say they cannot endure tariff increases above 15%, while 42% indicate that even single-digit increases would pose serious challenges.

The Korean government has responded with multiple policy initiatives, including the passage of a ₩31.8 trillion supplementary budget targeting exports and consumption support. The Ministry of Trade, Industry and Energy has maintained an emergency response system and continues providing tailored support through export voucher programs and trade insurance for small and medium-sized exporters. Korean online communities and business forums show mixed reactions to these measures, with some praising government responsiveness while others question whether the support is sufficient given the scale of the challenges. The upcoming Korea-US trade talks, originally scheduled for July 25 but recently postponed, represent a critical juncture for determining whether bilateral tensions can be resolved before the August 1 tariff deadline. As one industry observer noted, 'Korea is fighting an uphill battle to maintain its export competitiveness while navigating an increasingly complex geopolitical landscape.'