Recent shifts in Korea’s trade structure are characterized by a broad-based rise in imports from China and a concentrated expansion of exports to the United States in a small set of products, resulting in deeper bilateral trade dependence with both economies. These structural shifts introduce multiple risks, including supply chain vulnerability, job losses in sectors competing with Chinese imports, exposure to U.S. protectionism, and macroeconomic instability. Proactive trade diversification through coordinated policies and targeted export promotion initiatives is essential, alongside institutional reforms to shield affected industries and workers. This agenda should remain a policy priority even after the current trade negotiations with the U.S. are concluded.

Ⅰ. Introduction

The Trump administration’s trade protectionism and tariffs have fueled global trade uncertainty, emerging as a formidable threat to trade-dependent South Korea. While it is both justified and necessary for the Korean government to prioritize tackling these escalating trade challenges, it would be misguided to assume that addressing them alone will suffice for Korea’s full range of trade concerns. Instead, this global trade uncertainty is overshadowing the structural transformations in Korea’s trade and their far-reaching implications. This study analyzes Korea’s changing trade structure over the past decade to assess its dynamics through the lens of efficiency and economic security to guide medium- to long-term government policy.

Figure 1 illustrates Korea’s trade with China, the U.S., and other countries. Panel (a) shows that Korea’s exports to China have stagnated in the $130？160 billion range since the 2010s, while imports have steadily increased since the Korea？China Free Trade Agreement (FTA) took effect in 2015. From 2018 to 2023, Korea’s net exports to China declined by approximately $60 billion, turning to a deficit. In sharp contrast, Panel (b) shows Korea’s trade surplus expansion with the U.S. since 2020 to nearly $60 billion in 2024, primarily due to export growth. Korea’s export values to the U.S. recently reached around $130 billion, almost equaling those to China in scale. Panel (c) depicts relatively balanced trade with countries other than the U.S. and China. Overall, these trends indicate that Korea’s trade surplus was primarily driven by trade with China in the 2010s and with the U.S. in the 2020s. Furthermore, Panel (d) illustrates that such structural changes unfolded alongside growing trade dependence on the two. Between 2012 and 2024, Korea’s export share to the U.S. rose 8.0%p, while the import share from China expanded 6.6%p.

The drivers of Korea’s trade shifts with China and the U.S. can be better understood with product-level data. Figure 2 presents Korea’s quarterly trade balances by the Harmonized Commodity Description and Coding System (HS Code) 2-digit product categories, or chapters,calculated on a trailing twelve-month (TTM) basis. Panel (a) reveals that Korea’s trade balance deterioration with China was mainly driven by declining exports across mainstay export items, such as semiconductors and electronic devices, precision instruments and LCDs, and machinery and home appliances, as well as expanding imports in most other product categories. In other words, net imports increased broadly across manufacturing products, including intermediate, capital, and consumer goods. On the other hand, Panel (b) shows that Korea’s trade balance improvement with the U.S. was driven by export expansion in three product categories, namely, motor vehicles and parts, semiconductors and electronic equipment, and machinery and home appliances. Motor vehicles and parts exports, in particular, surged from 2021, accounting for over half of Korea’s trade surplus with the U.S. in 2024. Fossil fuels were the only import category showing significant growth.

Figure 3 illustrates trade concentration trends across six major economies, including Korea, using the Herfindahl-Hirschman Index (HHI), where higher values indicate greater concentration among fewer trading partners or products.4) Panels (a) and (b) show Korea with the highest country-level trade concentration among the six, with import concentration trending upward until recently due to increased dependence on China. In constrast, China has rapidly diversified its export destinations since the 2018 U.S.-China trade war, simultaneously reducing import concentration. The Netherlands, whose trade-to-GDP ratio exceeds Korea’s, as well as global manufacturing powers Germany and France, have lowered their trade concentration or kept it low. Panels (c) and (d) on product-level trade concentration also reveal that Korea ranks high. Nevertheless, Korea’s export concentration sharply increased while its import concentration declined relative to 2011, reflecting the concentration of Korea’s exports to the U.S. in a few products and the expanding diversification of Chinese imports across various product categories.

In sum, Korea’s trade patterns emerging since the 2010s reflect four key trends: (i) expanding net imports from China across broad manufacturing categories; (ii) increasing exports to the U.S., driven by a few mainstay products, including automobiles and semiconductors; (iii) deepening dependence on the U.S. for exports and on China for imports; and (iv) rising country-level import concentration and product-level export concentration.

Ⅲ. Economic Security Implications of Korea’s Changing Trade Structure

Several plausible explanations can be provided. Regarding China, government-led industrial policies and technological advancements have boosted its manufacturing competitiveness, and the Korea？China FTA lowered tariff barriers, both likely contributing to an overall expansion of imports from China. Moreover, China’s push to localize intermediate goods and expand export share under the Dual Circulation Strategy since 2020, alongside U.S. semiconductor export controls to China from 2022, could have exacerbated Korea’s trade balance deterioration with China. Fajgelbaum et al. (2024) note that Korean products tend to be substitutes for Chinese goods but complements to U.S. products, indicating that bilateral tariffs between the U.S. and China since the 2018 trade war reduced Korea’s exports to China and increased its exports to the U.S. Additionally, U.S. policies promoting domestic manufacturing investment since 2022, including the Creating Helpful Incentives to Produce Semiconductors and Science Act (CHIPS and Science Act) and Inflation Reduction Act (IRA),induced Korean firms to expand their production facilities within the U.S. and likely boosted Korea’s exports in related products, including semiconductors and machinery. The rising global competitiveness of Korean automotive brands, coupled with growing U.S. demand for eco-friendly vehicles, appears to have furthered Korea’s export growth and concentration.

These explanations suggest Korea’s shifting trade patterns largely stem from technological, industrial, and policy changes in the U.S. and China, combined with the structural driver of their geopolitical rivalry. These dynamics are unlikely to subside soon but continue to shape Korea’s external trade environment. Unlike the pre-2010 Pax Americana and cooperative multilateralism focused on maximizing economic efficiency, today’s trading system is increasingly shaped by U.S.？China hegemonic rivalry and resurgent nationalism, with policy priorities shifting from efficiency toward economic autonomy and security. From this economic security perspective, Korea’s evolving trade structure carries at least four key implications.

First, expanding imports from China has deepened Korea’s dependence on China for domestic manufacturing supply chains, creating vulnerabilities to both economic security and its global competitiveness of future industries. Figure 4 projects reductions by industry in domestic manufacturing outputs from a 1% supply shock across foreign countries, showing that much of Korea’s increased foreign supply chain dependence originates from China. This dependence is especially stark in large-scale industries, such as chemicals, petroleum products, primary metals, and electronics and semiconductors, supporting concerns about China’s growing influence. China’s dominance extends to strategic industries, including secondary batteries, robotics, and renewable energy, potentially jeopardizing their medium- to long-term development.

Second, Korea’s domestic manufacturing industries face intensified competition from Chinese imports, risking heightened vulnerability to adverse impacts on production and employment. Autor et al. (2013; 2016) found that rising imports from China triggered unemployment and wage declines among U.S. workers, with regional labor market disruptions persisting for over a decade.5) Subsequent studies suggest Korea faces similar structural challenges, highlighting not only employment declines in import-competing sectors but also deteriorating job quality, including rising temporary employment (Choi and Xu, 2020), job shifts to low-wage service positions (Choi et al. , 2025), and prolonged wage stagnation (Koo et al. , 2024). The negative impact going forward could be even greater, considering Korea’s relatively rigid labor market and sustained import growth from China since the 2010s, the period covered by these studies. These trends are also closely tied to the decline of manufacturing-heavy regional economies and population decline.

Third, regardless of causes, Korea’s growing exports to the U.S. may provide grounds for the U.S. government to employ its economic statecraft by invoking concerns over bilateral trade deficits (Hirschman, 1945). Panel (a) of Figure 5 shows that China maintains a long-term trade surplus, so its rising imports from Korea draw little concern. In contrast, the U.S. continues to face a chronic and widening trade deficit, implying that efforts to address this imbalance may extend beyond the Trump administration. As Korea’s growing trade surplus with the U.S. is driven by a few products, these items are easy targets for tariffs. Panel (b) presents the top 10 U.S. trade deficit products in 2024 (at the HS 2-digit level), revealing that three items with notably great deficits precisely match Korea’s export products driving its trade balance improvement with the U.S. Recently, the U.S. has imposed or signaled additional tariffs on motor vehicles, home appliances, and related parts, and given Korea’s export concentration in these products, the impact on Korea may be disproportionately severe.

Fourth, deepening trade concentration in select countries and products may reflect gains in competitiveness and efficiency, yet it also heightens an economy’s exposure to macroeconomic instability. Caselli et al. (2020) show that while trade-driven industry specialization increases exposure to industry-specific shocks, diversifying trading partners can effectively mitigate overall macroeconomic volatility. However, as in Korea, when export concentration in specific items, such as semiconductors or automobiles, coincides with growing trade dependence on a few countries, including the U.S. and China, macroeconomic volatility may be amplified.

Ⅳ. Trade Policy Challenges for Tackling Structural Trade Changes

Optimizing the balance between efficiency and economic security is challenging yet essential. Differing priorities between firms and governments for these goals partly justify government policy intervention. Firms manage risks without internalizing external effects, but governments consider economy-wide spillover effects. Accordingly, this analysis focuses on feasible policy measures to promote trade diversification while briefly addressing protection measures for domestic industries and workers.

Above all, trade diversification is critical to address the broad-based increase in imports from China, export growth to the U.S. concentrated in a few products, and the resulting increase in trade dependence on select countries and products. Korea’s specialized production and targeted industrial policy in scale-intensive industries, such as semiconductors, automobiles, and shipbuilding, may inevitably increase export concentration in limited products. This makes diversifying trading partners even more critical for strengthening its economic resilience.

Trade diversification can be pursued through state-level economic diplomacy and trade cooperation, alongside firm-level support measures. Trade policy initiatives should actively forge new bilateral and multilateral trade agreements with countries beyond the U.S. and China and deepen existing agreements to create new trade opportunities (trade creation), while redirecting trade flows from select countries to new partners (trade diversion). Accelerating Korea’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), stalled since 2021, is particularly pressing. The CPTPP promotes a high degree of openness among 12 member economies, excluding the U.S. and China, and can effectively alleviate trade dependence on the two while strengthening supply chain stability. Viewed as a “gold standard” agreement, covering digital trade, intellectual property, environmental standards, and labor provisions beyond tariff elimination, it may serve as a cornerstone for shaping Korea’s future trade policy.

With 22 FTAs in force covering 59 major countries, some may contend that the government has already done its part. However, China’s post-2018 trade restructuring demonstrates the need for active government involvement to achieve trade diversification. Since the trade war, China has reduced its U.S. reliance while expanding its trade share with over 150 Belt and Road Initiative (BRI) partners from 40.6% in 2018 to 49.8% in 2024. China also led Regional Comprehensive Economic Partnership (RCEP) negotiations and revised existing FTAs, stabilizing its trade structure while sustaining overall trade growth. Korea, too, can tap into new markets: South and Southeast Asia with high growth potential, Europe curbing China’s economic influence, the Middle East pursuing industrial transformation, and Central and South America and Africa rich in key resources. Therefore, expediting the conclusion of trade agreements with countries offering prospective export demand or contributing to Korea’s supply chain stability is essential, together with broadening the scope and depth of existing FTAs with limited trade creation and diversion effects.

Firm-level efforts to diversify trading partners and export products are also needed. The government should review related policy instruments and actively implement those proven effective to help firms’ diversification efforts. Import-side measures include the Supply Chain Stabilization Fund for leading businesses and comprehensive supply chain support projects for materials, parts, and equipment. Given their recent implementation, it is advisable to expand their scope while continuously monitoring outcomes to maximize effectiveness. Additionally, as Chung (2023) emphasized, rather than focusing solely on reshoring overseas production, strengthening domestic investment incentives for both domestic and foreign firms in strategic industries can promote “production domestication,” ensuring critical supply chain processes occur onshore.

On the export side, as policies promoting the export orientation of domestic firms and the diversification of export destinations and products have been in place for an extended period, they can be significantly expanded based on performance evaluations. According to Chung (2024), export support policies, collectively known as trade and commerce promotion initiatives,9) increase the likelihood of new export market entry by domestic firms by approximately 10%p and expand the number of export destinations by around 0.2. Moreover, even one-off support measures show sustained effects for at least six years, which can serve as a cost-effective policy instrument.

Another priority is consolidating support systems for firms and workers affected by trade shocks, such as import surges or supply chain disruptions. Intensifying protectionism in major economies amid rapid competitive gains of Chinese products renders the relatively lowbarriered Korean market susceptible to expanded foreign penetration. Thus, the Korea Trade Commission’s capacity to monitor unfair trade practices should be strengthened for prompt responses to domestic industrial harm. 27 (67.5%) of 40 anti-dumping cases filed between 2020 and April 2025 involved China, underscoring the need for systematic monitoring and timely relief. Support for affected firms should prioritize productivity-enhancing investments or consulting assistance over operating funds, enabling firms to adjust to mediumto long-term trade environment changes. For displaced workers, vocational training programs like the U.S. Trade Adjustment Assistance (TAA) that facilitate re-employment are desirable.

Ⅴ. Conclusion

The government’s recent efforts to prepare preemptive responses to the rapidly changing trade environment appear appropriate. However, these measures should not be confined to addressing short-term business pressures arising from potential U.S. tariff actions. Rather, they should be pursued as part of a longer-term agenda aimed at easing Korea’s high trade concentration―both in terms of products and dependence on the U.S. and China―by opening new export and import channels, enhancing economic stability and dynamism, and strengthening protections for firms and workers adversely affected by import competition. Even if current trade negotiations conclude successfully, Korea’s trade structure will remain vulnerable unless meaningful improvements are made from an economic-security perspective.