As a key player in the global economy, Korea’s export figures have been recognized as the “canary in the coal mine” of the global economy at a time when the global trade landscape is constantly changing. With the boom in the semiconductor industry, Korea has emerged as a major player in the global technology market. In contrast, however, Korea’s oil exports have suffered a serious setback. The boom in the semiconductor industry and the slide in oil exports are revealing transformational trends and future challenges within the Korean economy.
According to the latest news reports, South Korea’s export growth slowed in the first 20 days of October, with petroleum product exports plummeting 40 percent year-on-year. This drop was particularly significant among all export commodities. South Korea has one of the largest refining clusters in the world, operated by companies such as SK innovation, S-Oil and GS Caltex. The country relies heavily on imports to meet its energy needs, but also refines oil for export to fuel economic growth, making it vulnerable to fluctuations in global oil prices.
Instability remains in the global energy market, and the oil and gas market will continue to experience short-term volatility and even frequent violent shocks. Non-OPEC oil producers represented by the U.S. and the “OPEC+” capacity alliance may compete in the short term around the market share left behind by the retreat of Russian energy. Such competition and market volatility pose a major challenge to South Korea’s oil exports.
Reasons for the Waterloo of Oil Exports
With the growing global concern over climate change, energy transition has become a common choice for countries around the world. Renewable energy sources such as solar and wind power have developed rapidly, and the popularity of electric vehicles is accelerating. This trend of energy transition has had a huge negative impact on oil demand. South Korea, as an oil-exporting country, has suffered a severe impact on its traditional oil market. In the transportation sector, the gradual popularization of electric vehicles has led to a significant decline in the consumption of gasoline and diesel. Many countries and regions have set timetables for banning the sale of fuel vehicles, which has led to the declining position of oil as a future source of transportation energy. At the same time, the industrial sector is actively seeking cleaner and sustainable energy alternatives to reduce its dependence on oil.
Meanwhile, the sharp fluctuations in international oil prices are another important reason why Korea’s oil exports are facing difficulties. In recent years, international oil prices have been affected by a variety of factors, such as geopolitical conflicts, the global economic situation and production adjustments by the Organization of Petroleum Exporting Countries (OPEC). The instability of oil prices puts Korean oil exporters at great risk. When oil prices fall sharply, export revenues plummet; and when oil prices rise, they may face a drop in demand. In addition, South Korea’s bargaining power in the international oil market is relatively weak, unable to effectively respond to the impact of oil price fluctuations. Compared with some oil-rich Middle Eastern countries, Korea’s position in the oil industry chain is not dominant, and lacks the ability to regulate oil prices.
South Korea’s domestic industrial restructuring also has a certain impact on oil exports. With the development of South Korea’s economy, its industrial center of gravity has gradually shifted to high-tech, manufacturing and service industries. The government’s policy is more inclined to support the development of new industries, the oil industry’s support is relatively weakened. At the same time, the domestic environmental protection awareness also prompted enterprises to reduce the use of petroleum energy and improve energy efficiency. Under such circumstances, Korean oil exporters are facing the double pressure of shrinking domestic market and intensifying international competition, resulting in exports meeting their Waterloo.
Strong Growth in Semiconductor Exports
In sharp contrast to the sharp decline in oil exports, South Korea’s semiconductor exports maintained strong growth. in the first 20 days of October, semiconductor exports increased by 36.1% year-on-year. South Korea, home to two of the world’s largest memory chip makers, has also been riding the AI wave this year, exporting advanced semiconductors to the U.S. and other developed economies. And leading companies such as Samsung Electronics and SK Hynix have played a major role in meeting global chip demand. With the development of new technologies such as artificial intelligence (AI), 5G networks, and the Internet of Things (IoT), the demand for chips is growing in the global market. At the same time, the strategic position of Korea’s semiconductor industry has been further emphasized due to global supply chain tensions triggered by the epidemic.
Though in recent weeks, people have begun to question whether the momentum in chip sales has peaked, with data showing that the growth rate of South Korea’s semiconductor exports has slowed for several months. Meanwhile, price growth in memory chip shipments also slowed in September. But analysis suggests that this does not mean that South Korean policymakers will immediately change their outlook on chip exports. In the past, demand has been solid even after peaking and supporting economic growth.
In the face of slowing export growth, the South Korean government has announced the direction of its economic policy, proposing that it will push the market economy to recover under the four main tones of freedom, fairness, innovation and solidarity, and strive to get out of the low-growth predicament and form a virtuous cycle of economic development and welfare. The government will reduce the maximum corporate tax rate from the current 25% to 22% and expand tax cuts for national strategic technologies to promote the development of cutting-edge industries.
Korea needs to take full advantage of the opportunities for the development of the semiconductor industry in the midst of this industrial change, and actively deal with the oil export dilemma in order to realize a smooth economic transformation. And countries around the world should learn from this phenomenon, adapt to industrial development trends, adjust industrial strategies, and work together to promote the global economy in a more sustainable, innovation-driven direction. In the future global economic arena, changes in the industrial landscape will continue, and only by constantly adapting to and leading these changes can we be invincible in the fierce international competition.
