South Korea eyes end to China trade deficit on chip price surge

South Korea is poised to reverse its trade deficit with China, a significant shift from recent years, largely propelled by a dramatic increase in memory chip prices. This turnaround is expected to end a three-year streak of trade deficits with its largest trading partner.

Data from South Korea's Ministry of Trade, Industry and Energy reveals a substantial 80.9% year-on-year increase in exports to China in May, reaching $18.9 billion. This marks the seventh consecutive month of export growth to China, signaling a robust recovery in trade relations.

The surge in semiconductor prices is the primary driver. The price of DDR-16GB memory chips more than sevenfold, while NAND flash memory prices saw an even more dramatic increase of 807%. As a leading global supplier of memory chips, South Korea's trade balance is heavily influenced by these price fluctuations, with semiconductors accounting for approximately 60% of its exports to China and 42.3% of its total exports in May.

This recovery is a welcome development for South Korea, which recorded a record trade surplus of $55.6 billion with China in 2018. However, the country faced its first trade deficit of $18 billion in 2023, which widened to $11.2 billion last year. The current year's cumulative surplus of $9.9 billion from January to May offers a strong indication of a sustained positive trade balance.