🚨 Deepening Semiconductor Illusion
Today Korean Economic News for Beginners | 2025.08.20
0️⃣ Growing Concerns Over Structural Imbalance Behind Export Boom
📌 Exports Actually Decrease When Semiconductors Excluded, General Machinery·Petrochemicals·Steel Continue to Struggle
💬 While overall export statistics look good due to semiconductor export boom, a deepening 'illusion effect' shows that exports of major items actually decrease when semiconductors are excluded. Traditional major export items like general machinery, petrochemicals, and steel continue to struggle due to global economic slowdown and Chinese competition. With the US imposing 50% tariffs on steel and aluminum and domestic labor regulation strengthening moves overlapping, structural weakening of export foundation is a growing concern. Experts warn that as semiconductor dependence increases, economic shock could be greater when other industries decline.
1️⃣ Easy Understanding
Korea's exports look good on the surface, but in reality, semiconductors alone are supporting everything, creating a dangerous situation. Other major export items are actually decreasing, so if the semiconductor market shakes, Korea's entire economy could be severely hit.
Let me explain the current situation simply. Korea's total exports are increasing, but this is mostly thanks to semiconductors. Memory semiconductors made by Samsung Electronics and SK Hynix have seen explosive export growth as they became popular worldwide with the AI boom.
However, looking at other items excluding semiconductors shows a different story. Cars and ships are doing relatively well, but traditional major exports like general machinery, petrochemicals, and steel keep decreasing. This phenomenon is called 'semiconductor illusion.'
The problem doesn't stop there. The US decided to impose high 50% tariffs on Korean steel and aluminum products. This will greatly reduce Korean products' price competitiveness, making exports much harder. If a 1 million won steel product has 500,000 won tariff added, it becomes 1.5 million won.
The domestic situation is also challenging. If labor-related regulations like the Yellow Envelope Law are strengthened, companies' burden will increase, forcing them to reduce investment and production. This could eventually lead to weakened export competitiveness.
This situation is dangerous based on past examples. In the mid-2000s, when the shipbuilding industry was booming, Korea's economy heavily depended on shipbuilding. However, after the global financial crisis, the shipbuilding industry rapidly declined, causing great shock to Korea's economy.
The current semiconductor situation is similar. While semiconductor demand is exploding due to the AI boom, it's uncertain how long this prosperity will last. If the semiconductor market slows down, Korea's entire exports could be severely hit.
In the end, the current export boom depends on the unstable structure supported by one pillar: semiconductors.
2️⃣ Economic Terms
📕 Semiconductor Illusion
Semiconductor illusion refers to the phenomenon where total exports seem to increase due to semiconductor export boom, but other items are actually decreasing.
- This is a statistical illusion that appears as semiconductors take up a larger share of total exports.
- It's interpreted as an indicator showing deepening imbalance in export structure.
- The higher the dependence on specific industries, the greater the economy's volatility can become.
📕 Tariffs
Tariffs are taxes that countries impose on imported goods, used to protect domestic industries or as trade policy tools.
- The higher the tariff rate, the lower the price competitiveness of that product, making exports more difficult.
- The US's 50% tariffs on steel and aluminum create significant burden for Korean companies.
- Trade regulations using tariffs are increasing as protectionism spreads.
📕 Export Structure Imbalance
Export structure imbalance refers to export patterns that depend too heavily on specific items or industries.
- In Korea's case, semiconductor dependence is rapidly increasing.
- The more severe the imbalance, the greater the shock to the entire economy when that industry declines.
- It's important to diversify export items to spread risks.
📕 Trade Balance
Trade balance is an economic indicator showing the difference between a country's exports and imports.
- If exports exceed imports, it's a surplus; if less, it's a deficit.
- Korea maintains trade balance surplus thanks to semiconductors.
- However, if other items continue to struggle, the structural surplus foundation could weaken.
3️⃣ Principles and Economic Forecast
✅ Structural Risks of Specific Industry Dependence
Let's analyze the risks of economic structure that depends too heavily on one industry.
First, vulnerability to market changes increases dramatically. Currently, Korean semiconductor exports account for over 20% of total exports. This phenomenon appeared as memory semiconductor demand exploded with the AI and data center boom. However, the semiconductor industry originally has very high volatility. It usually repeats boom and bust cycles every 3-4 years, and it's uncertain how long the current AI boom will continue. If AI investment slows or global economy enters recession, semiconductor demand could also drop sharply, which would severely hit Korea's entire exports.
Second, competitiveness decline in other industries could accelerate. When semiconductors do well, there's a risk that government and companies might neglect attention and investment in other industries. In reality, competition with China is intensifying in areas like general machinery, petrochemicals, and steel, but fundamental countermeasures are being delayed. Also, as talent and capital concentrate in the semiconductor field, innovation capacity in other industries could decline. This could lead to overall competitiveness weakening of Korea's economy in the long term.
Third, there's risk of sudden shock as seen in past shipbuilding cases. In the mid-2000s, Korea's shipbuilding industry ranked first globally and led the economy, but after experiencing rapid decline following the 2008 global financial crisis, it severely impacted regional economy and employment. As Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering underwent restructuring, tens of thousands of jobs disappeared. The current situation with increasing semiconductor dependence carries similar risks.
The higher the dependence on specific industries, the lower economic stability becomes and volatility inevitably increases.
✅ Protectionism Spread and Korea's Response Challenges
Let's examine the impact of global protectionism spread, including US tariff imposition, on Korean exports.
First, tariff imposition directly undermines Korean companies' price competitiveness. When the US imposes 50% tariffs on Korean steel, it effectively increases Korean steel products' US market price by 50%. This makes it difficult for Korean steel companies like POSCO or Hyundai Steel to compete in the US market. Particularly since the US is one of Korea's major steel export markets, if tariff imposition becomes long-term, it will significantly impact related companies' profitability and employment.
Second, protectionism spread is restructuring global supply chains. Not only the US, but also Europe and China are strengthening various trade regulations to protect their domestic industries. This means the free trade system that lasted for the past 30 years is shaking. For countries with high export dependence like Korea, this is a very unfavorable environmental change. Companies must respond to different regulations by market, and the burden of diversifying supply chains is growing.
Third, Korea needs response strategies through bilateral and multilateral trade agreements. To counter protectionism, trade agreements like Free Trade Agreements (FTA) or Regional Comprehensive Economic Partnership (RCEP) must be utilized more actively. Also, it's important to actively respond to unfair trade measures under the World Trade Organization (WTO) system. At the same time, companies also need strategies to reduce dependence on specific markets and diversify export markets.
Protectionism is changing the global trade order itself beyond short-term shocks, requiring fundamental response strategies.
✅ Correlation Between Domestic Regulations and Export Competitiveness
Let's analyze the impact of domestic regulation strengthening on export companies' competitiveness.
First, labor regulation strengthening could constrain companies' productivity and flexibility. If regulations like the Yellow Envelope Law are strengthened, companies could lose flexibility in workforce management and production costs could increase. Particularly, manufacturing companies must respond to rapid market changes in global competitive environments, but rigid labor regulations could reduce such responsiveness. There's risk that Korean companies' relative competitiveness could weaken compared to competing countries like China or Vietnam.
Second, increasing environmental regulations and ESG requirements are also increasing corporate burden. As carbon neutrality and eco-friendly management become global trends, Korean companies are also required to make significant investments and changes. Traditional manufacturing industries like steel and petrochemicals face particularly large burdens. While sustainable management will become competitiveness in the long term, it's currently a cost-increasing factor in the short term.
Third, predictability and consistency of regulations are important. For companies to make long-term investment plans, they must be able to predict how the regulatory environment will change. Sudden or inconsistent regulatory changes could reduce companies' investment enthusiasm and weaken foreign investors' trust. The government should introduce necessary regulations while providing sufficient time and clear guidelines for companies to adapt.
Finding the balance between domestic regulations and export competitiveness is key to Korea's sustainable economic growth.
4️⃣ In Conclusion
While Korea's exports appear to be doing well on the surface, in reality, an imbalanced structure depending on semiconductors alone is deepening. In this situation, with US tariff imposition and domestic regulation strengthening overlapping, structural weakening of Korea's export foundation is concerning.
The biggest problem is that major export items excluding semiconductors continue to show sluggish performance. General machinery, petrochemicals, and steel are struggling due to intensifying competition with China and global demand slowdown. In this situation, the structure where only semiconductors support total exports is very dangerous.
The US's 50% tariffs on steel and aluminum further highlight this structural vulnerability. As protectionism spreads, it's becoming increasingly difficult for Korean companies to compete in global markets. Particularly, if price competitiveness also falls while the technology gap with China narrows, Korean manufacturing's position could greatly shrink.
Domestic regulation strengthening movements are also concerning. If regulations strengthen in various areas like labor and environment, companies' productivity and competitiveness could decline. While some regulations are socially necessary, balanced approaches considering global competitive environments are needed.
As seen in past shipbuilding cases, structures that depend too heavily on specific industries cause great shock to the entire economy when those industries decline. While the current semiconductor boom continues, this won't be forever. Therefore, it's important to diversify export structure and strengthen other industries' competitiveness from now.
Companies must reduce dependence on specific markets or items and accelerate transition to new technology development and high-value-added products. The government must prepare countermeasures for protectionism and support companies' competitiveness through appropriate regulation adjustment.
Ultimately, overcoming the current 'semiconductor illusion' and creating a balanced export structure is the key challenge for Korea's sustainable economic growth.
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