Korea started the year with strong exports! Strong semiconductor demand offset the impact of automotive tariffs.

South Korea's export growth accelerated on the 20th of January, mainly driven by the sustained strong demand for semiconductors, while car exports performed weakly against the backdrop of increased tariffs by the United States. Data from the South Korean customs on Wednesday showed that, after adjusting for differences in working days, exports in the first 20 days of January increased by 14.9% year-on-year, higher than the revised 13.3% growth in December the previous year. Adjusted exports also grew by 14.9%, with imports increasing by 4.2% during the same period, resulting in a trade deficit of 626 million US dollars. There was a significant divergence in industry performance. Semiconductor exports surged by 70.2% year-on-year, driven by the global artificial intelligence and data center investment boom. Exports of wireless communication equipment and petrochemical products also increased by 48% and 18% respectively. The strong growth in semiconductor exports partially offset weakness in other areas. Car exports fell by nearly 11%, reflecting a slowdown in global demand and the impact of increased tariffs by the United States; ship exports also decreased by 18%. Economist Hyosung Kwon said, "The strong export growth in the first 20 days of January confirms our assessment that the robust semiconductor demand driven by the global AI investment boom will be the main engine of growth for South Korea's exports and economy in the coming year. Although the decline in car and parts exports indicates that US tariffs are having an impact, the growth in semiconductor exports is enough to offset this drag." The latest data provides some basis for policymakers. A milestone trade agreement reached between South Korea and the United States set the maximum tariff limit for Korean imports at 15%, with tariffs on cars and parts retroactively reduced to the same level since November of the previous year. Although the agreement reduced tariffs from the high levels in the spring, they are still significantly higher than those under the previous South Korea-US FTA. For an economy where exports account for over 40% of GDP, concerns are raised about the potential long-term drag on exports. The weakening Korean won has provided a boost to exports. Since late June of last year, the Korean won has depreciated by over 8% against the US dollar. While the depreciation boosts the price competitiveness of Korean export products in overseas markets, it also raises inflation, affecting consumer goods and prices of raw materials and parts for manufacturers. Currently, both core inflation and overall inflation in South Korea have exceeded the central bank's target of 2%. The central bank has warned that a continued weak won could further increase import cost pressures. In terms of monetary policy, the Bank of Korea held its benchmark rate at 2.5% for the fifth consecutive meeting last week, and removed language hinting at a possible rate cut in the policy statement, essentially shifting to a neutral stance. Governor Lee Chang-yeong said that the economic outlook faces both upside and downside risks, and the committee will wait for more data before deciding on the next steps. Performance among major trading partners varied. Exports to China grew by 30.2%, while exports to the United States increased by 19.3%. In contrast, exports to the European Union and Japan fell by around 15% and 13% respectively.