Korea's export route to US demand shifts from China to ASEAN plants
The Bank of Korea said in a report released on Sunday that the share of Korean intermediate goods reaching US final demand through Chinese production bases fell from 10.7 per cent in 2016 to 6.8 per cent in 2022, while the share routed through five ASEAN countries including Vietnam rose from 4.9 per cent to 8.3 per cent. Vietnam, India and Mexico are emerging as connector countries, and the bank advised reducing dependence on any single production hub or route.
Economics & Markets··Morning
Fewer Korean parts reach America through China, more through ASEAN
The Bank of Korea, South Korea's central bank, released on Sunday an issue note on how global economic linkages are being reorganised amid geopolitical fragmentation. Its finding on routes: of the Korean intermediate goods that end up serving final demand in the United States, the share passing through production bases in China fell from 10.7 per cent in 2016 to 6.8 per cent in 2022, while the share passing through five economies of ASEAN, the Association of Southeast Asian Nations, including Vietnam, rose from 4.9 per cent to 8.3 per cent. Global trade has not contracted sharply despite the conflict between the United States and China, the note says; supply chains are instead being reconfigured to run through third countries.[1], [2]
Vietnam becomes the hub where Korean value added heads to both markets
The Vietnam link stands out. The share of the value added in Korea's exports to Vietnam that ended up in US consumption and investment rose from 11.1 per cent in 2016 to 18.5 per cent in 2022, and the share ending in China from 7.3 per cent to 13.9 per cent; Korean inputs are increasingly processed in Vietnam before the finished goods head to the United States or China. In computers, electronics and optical equipment, a sector that includes semiconductors, those links reached 21.0 per cent for the United States and 19.4 per cent for China. The bank described Vietnam, India and Mexico as connector countries tied to both sides as direct trade between the United States and China declines, while the share of Korean value added tied directly to US final demand stayed largely stable.[1], [2]
A warning on rules of origin and transshipment probes
The bank paired the finding with a warning. Policy shifts in major economies and supply-chain shocks could reach the Korean economy through third-country production networks, and supply chains that rely on production bases in third countries could come under greater strain if the United States tightens its rules of origin, the tests that decide where a product legally comes from, and steps up investigations into transshipment, the routing of goods through another country to avoid tariffs. Its recommendation is to reduce dependence on any single production hub or route and to diversify supply chains.[1], [2]
