🚨 Korea's Mixed Export Results: Semiconductors Strong vs Auto·Steel Hit by Tariffs

Today Korean Economic News | 2025.06.02

📌 Semiconductors Hit Record High, Auto·Steel Drop Sharply Due to Tariffs

💬 Korea's May exports turned negative for the first time in 4 months, showing mixed results. Semiconductors recorded the highest May performance ever due to AI demand, but US 25% tariff measures caused auto exports to drop 27% and steel exports to fall 34%. Exports to both the US and China decreased by about 8%, breaking the overall export growth trend. The Ministry of Trade, Industry and Energy said, "Despite strong semiconductor performance, tariff impacts on major items are hurting overall results" and "export diversification and new market development are urgent."

1️⃣ Easy to Understand

Korea's exports are showing very different results. Semiconductors are doing great, but cars and steel are getting hurt badly by US tariffs, so overall exports went down.

Exports had been growing from January to April, but they dropped for the first time in May. But this includes two completely different stories.

The first story is about semiconductors doing amazingly well. Memory chips made by companies like Samsung Electronics and SK Hynix are selling like hotcakes. The reason is the AI boom. As AI services like ChatGPT became popular, demand for high-performance semiconductors needed to run them exploded. May semiconductor exports set the highest record ever for May.

The second story is about the big troubles for cars and steel. President Trump put a high 25% tariff on Korean products, hitting these two areas hard. Simply put, if you want to buy a Hyundai or Kia car in the US, it now costs 25% more than before. Naturally, US consumers started choosing cheaper cars from other countries instead of Korean cars, and as a result, auto exports dropped by 27%. Steel also fell by 34%.

The problem is that the US and China are Korea's top two export countries. When exports to both countries fell by 8% each, it had a big impact on overall export results. For China, Korea's product demand is falling due to their own economic slowdown.

The government announced it's looking for new export markets to respond to this situation. The plan is to diversify export destinations to India, Southeast Asia, and the Middle East, and increase exports in new areas like bio and green energy.

Since Korea's economy can't depend only on semiconductors, we need a strategy where various industries can grow together.

2️⃣ Economic Terms

📕 Export Growth Rate

Export growth rate shows how much exports increased or decreased compared to the same period last year.

• Plus (+) means exports increased from last year, minus (-) means they decreased.
• Korea has high export dependence, so export growth rate directly affects economic growth rate.
• May exports turning negative for the first time in 4 months reflects difficulties in major items.

📕 Tariff

A tariff is a tax put on goods coming from foreign countries.

• It's a policy tool to make imported goods more expensive to protect domestic industries.
• When the US puts a 25% tariff on Korean products, prices go up 25% and competitiveness falls.
• Tariff increases are a direct factor leading to sharp drops in exports of those items.

📕 Export Diversification

Export diversification is a strategy to spread exports across various markets and products instead of depending on specific countries or items.

• Depending on just one or two countries means being greatly affected by changes in those countries' economies or policies.
• The goal is to increase export stability through developing new markets and new products.
• Korea urgently needs export diversification due to US-China trade conflicts and tariff measures.

📕 AI Semiconductor Demand

AI semiconductor demand means the need for high-performance semiconductors that's increasing as AI services spread.

• As AI services like ChatGPT and Google Bard increase, large amounts of memory are needed to process them.
• Korea's Samsung Electronics and SK Hynix hold over 70% of the global memory semiconductor market.
• As long as the AI boom continues, strong semiconductor export performance is expected to continue.

3️⃣ Principles and Economic Outlook

✅ Background and Sustainability of Semiconductor Success

• Let's look at the causes and outlook for semiconductor export growth due to the AI boom.

  • First, the spread of generative AI is explosively increasing demand for memory semiconductors. After ChatGPT launched in late 2022, AI service development competition became fierce worldwide. Global big tech companies like Google, Microsoft, and Meta are making huge investments in building AI data centers, and high-capacity memory is essential in this process. AI model training and inference require more than 10 times the memory compared to before, creating a great opportunity for Korean semiconductor companies. For Samsung Electronics, May memory semiconductor exports increased over 40% compared to the same month last year, and SK Hynix's AI high bandwidth memory (HBM) products are completely sold out.

  • Second, Korean semiconductor companies' technical competitiveness is optimized for the AI era. Samsung Electronics and SK Hynix hold over 70% of the global memory semiconductor market, enjoying virtually monopolistic positions. Especially in AI-specialized HBM (High Bandwidth Memory) technology, SK Hynix ranks first globally and Samsung Electronics second, showing overwhelming advantages. This is the result of over 10 years of R&D investment and technology accumulation, making it difficult for China or other countries to catch up in the short term. AI chip companies like Nvidia also have very high dependence since they can't make products without Korean memory.

  • Third, the AI semiconductor boom is expected to continue for 2-3 years. Global consulting companies predict the AI semiconductor market will grow at an annual average of over 30%. Currently centered on data centers, but as AI expands to autonomous vehicles, smartphones, IoT devices, etc., demand is expected to increase even more. However, since technology development is fast, continuous R&D investment and next-generation technology development are essential. The government is also working on fostering the semiconductor industry through K-Semiconductor Belt creation and tax support, acting as positive factors.

• While the semiconductor boom is helping Korea's economy greatly, depending on only one industry can be dangerous. A balanced strategy where other major industries can also grow together is needed.

✅ Impact of Tariff Measures on Major Export Items

• Let's analyze the specific impact of US tariff policy on Korea's auto and steel industries.

  • First, the auto industry's sharp drop in US exports and production difficulties are serious. Hyundai Motor and Kia's May US exports decreased 27% compared to the same month last year, the biggest drop since COVID-19 in 2020. Due to 25% tariffs, Korean cars' price competitiveness fell greatly, causing sales to plummet in the US market. Especially in mid-size sedans and SUVs, they're being pushed out by Japanese and German cars. This led to production adjustments at major production bases like Ulsan and Asan, and partner companies are also getting hit in a chain reaction. Decreased sales at parts companies are leading to job insecurity, negatively affecting regional economies.

  • Second, the steel industry is also suffering double hardships from US tariffs and China's economic slowdown. The 34% sharp drop in May exports by major steel companies like POSCO and Hyundai Steel is a direct result of US tariff measures. Especially exports of high-value products like automotive steel sheets and shipbuilding plates to the US decreased greatly. Making matters worse, demand for general steel materials is also plummeting due to the real estate market slump in China, the biggest consumer, causing the steel industry extreme difficulties. Some small and medium steel companies are reducing operation rates to below 50% or temporarily stopping operations.

  • Third, pressure for restructuring is growing due to the possibility of long-term tariff measures. The Trump administration is pursuing tariffs as a long-term policy rather than temporary measures, deepening Korean companies' concerns. Hyundai Motor Group is already considering expanding local production through factory expansion in Georgia, US, and the steel industry is exploring detour export methods via third countries like Vietnam and Indonesia. However, these countermeasures require additional costs and time, making short-term profitability deterioration unavoidable. The government is expanding financial support and tax benefits for export companies, but this isn't a fundamental solution.

• Tariff measures are having wide-ranging impacts not only on the relevant industries but also on related industries and regional economies. Swift response strategies by companies and systematic government support are desperately needed.

✅ Need for Export Market Diversification and Strategy

• Let's explore ways to reduce dependence on US and China exports and develop new markets.

  • First, we must break away from excessive US-China dependence to secure export stability. Currently, Korea's US-China export share reaches 40% of the total, being overly exposed to economic or policy changes in these two countries. The 8% decrease in exports to both countries in May clearly shows this risk. Other export powerhouses like Germany and Japan maintain specific regional dependence within 30%, so Korea needs to benchmark this. Especially as US-China conflicts are becoming long-term, the risk of being forced to choose between the two countries is growing, making export diversification a survival strategy, not a choice.

  • Second, the potential of emerging markets like India, ASEAN, and the Middle East is getting great attention. India is a huge market with 1.4 billion people, recording high economic growth of over 6% annually, causing Korean product demand to surge. Especially in smartphones, cars, and chemical products, Korean brand preference is rising along with the Korean Wave effect. The 10 ASEAN countries also have young population structures and accelerating digital transformation, increasing demand for IT products and consumer goods. The Middle East region is making large investments in renewable energy and smart city construction as part of oil-exit policies, providing many opportunities to utilize Korea's technology. The government is building export foundations through FTA agreements and expanding economic cooperation with these regions.

  • Third, we must create new export momentum in advanced technology and eco-friendly fields. We need to diversify export items from traditional manufacturing-focused export structures to future growth areas like bio-health, renewable energy, secondary batteries, and robots. In secondary batteries, LG Energy Solution and Samsung SDI are already showing strength in global markets, and the bio-health field has also greatly increased international recognition since COVID-19. Korean Wave content represented by K-pop and K-dramas has also established itself as important export products, making it possible to expand exports of related industries using this. The government is focusing on fostering these new industries through the 'New Korean Wave Export $100 Billion' project.

• Export diversification is a long-term project that can't be achieved in a short time. Bold investment and challenges by companies are needed along with government policy support.

4️⃣ In Conclusion

May export results clearly show Korea's economic current status. While there's a strong growth engine called semiconductors, traditional major industries are taking big hits from US tariff measures, causing overall growth momentum to break.

The semiconductor boom is definitely a positive signal. Korean companies are solidifying their unique position in the global market riding the tide of the AI revolution era. However, depending on only one industry is dangerous. The semiconductor market also has cyclical characteristics, so it will inevitably experience adjustments someday.

The bigger problem is that traditional major industries like automobiles and steel are facing structural difficulties. Since US tariff measures are likely to become long-term strategies rather than short-term policies, fundamental countermeasures are needed. Companies must increase competitiveness through production base diversification, technological innovation, and product differentiation, and the government must expand policy support to back this up.

Above all, diversification of export markets and items is urgent. The current structure that depends excessively on the US and China is too vulnerable to geopolitical risks. We must secure new growth engines through developing emerging markets like India, ASEAN, and the Middle East, and fostering new industries like bio, eco-friendly, and digital.

Crisis can also be opportunity. If Korea's economy can develop into a more diversified and innovative structure through current difficulties, it will be able to build strong economic health that won't shake against any external shocks in the future.

In the end, now is an important turning point where we must prepare for the future through new challenges and innovation instead of being complacent with past success formulas. Government, companies, and citizens must all gather wisdom together to wisely solve these tasks.