Korea trade deficit hits a record $10.3 billion in the first half

Finance Minister Choo Kyung-ho looks at a metalic part for export at a company in Incheon on Friday. [YONHAP]

Korea's trade deficit hit a record $10.3 billion in the first half as imports rose dramatically due in part of higher commodity prices.

According to the Ministry of Trade, Industry and Energy on Friday, Korea's exports in the first six months totaled $350.3 billion, a 15.6 percent year-on-year increase and a record.

Imports rose 26.2 percent to $360.6 billion.

The previous trade deficit record was $9.16 billion in 1997 during the financial crisis.

The government cited the sharp increase in energy imports and rising commodity prices as the biggest contributors to the shortfall.

In the first half, Korea's imports of the three key energy sources — crude oil, LNG and coal — totaled $87.8 billion, up 87.5 percent year-on-year.

Due to the sharp increase in prices, Korea's imports of crude oil rose 207 percent year-on-year in the first half, LNG 114.9 percent and coal 88.1 percent.

"In the first half, despite challenging conditions, including the Russia-Ukraine war and the lockdown of cities in China due to spread of Covid-19, we were still able to achieve the biggest exports in any first half," said Moon Dong-min, deputy minister for Trade and Investment. "A $10.3 billion deficit occurred due to continuing energy and commodity inflation, which led to a sharp increase in imports."

The deputy minister noted the continuing challenges that Korean exports face, including a slowing global economy, a continuing rise in global crude prices and an increase in summertime energy consumption.

"With such concerns growing, we are at a point where we have to strictly manage trade risks," Moon said.

Exports of most goods in the first half increased, with semiconductor exports up 20.8 percent year-on-year to $69 billion.

Refined and related oil product exports rose 89 percent year-on-year to $30.4 billion, and petrochemical exports were up 16 percent to $30 billion.

Wireless communication device exports, including smartphones and tablets, rose 13.2 percent to $8.5 billion, while computer exports rose 35 percent to $9.5 billion.

Display exports increase 17.5 percent, while rechargeable battery exports were up 9.1 percent.

In the first half, exports to all countries except Russia and Ukraine increased.

Exports to Asean rose 31.8 percent to $64.7 billion, a record, while exports to China rose 6.9 percent to $81.4 billion and exports to U.S. increased 18.2 percent to nearly $65 billion.

In June, exports rose for the 20th consecutive month, up 5.4 percent on year to $57.7 billion. Imports were up 19.4 percent to $60.2 billion. For the first time since 2008, the trade deficit increased for three consecutive months.

The government noted that a trucker strike in June affected exports last month as some production time was lost and shipments delayed.

Exports to U.S. rose 12.2 percent to $9.9 billion in June, and exports to Europe were up 2.4 percent to $5.3 billion. Exports to China, Korea's biggest export market, fell 0.8 percent to $13 billion.

Exports to Russia fell 64.9 percent and to Ukraine 72.3 percent.

Finance Minister Choo Kyung-ho on Friday promised additional support measures for exporters, particularly smaller companies, while holding meeting with small exporters in Incheon.

"Exporters are facing many obstacles caused by the recent increase in commodity prices, anxiety over the supply network and the volatile currency," Choo said. "Considering that there are external factors that will unlikely improve in a short period of time, the second half won't be easy as well."

One of the key issue he raised was the inflexible labor restrictions.

"In the long-term, working hours have to be gradually reduced as the 52-hour workweek was first adopted in protecting the health of employees working long hours while improving working conditions," Choo said.

Yet the current regulation is applied too restrictively and applies to every situation and therefore needs to be improved, he added.

"The flexibility should be raised, and we will find improvement measures through discussion with experts, related government departments and the labor unions," Choo said.

The finance minister also said that one of the key issues that was brought up during the meeting with exporters was the recent logistics crisis.

"They said even when they were producing goods it was difficult to overcome the logistic crisis," Choo said.

While the finance minister did not mention steps to stabilize the weakening won, U.S. Treasury Secretary Janet Yellen is scheduled to visit Seoul later this month and Choo in May during his confirmation hearing stressed the importance of a currency swap with the U.S.

"Korea is not a key-currency country and therefore a currency swap with a country like the U.S. is very important," Choo said on May 2.

A currency swap with the U.S. expired at the end of last year.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]