Take out semiconductors and Korea runs a deficit with China

Korea’s trade balance with China was positive $5.38bn in July 2026. Its balance with China in integrated circuits alone was positive $9.87bn. Subtracting the second from the first leaves every other traded product combined at negative $4.50bn, and that deficit has held within $160m of the same level for three consecutive months.

+$9.87bn from one line, -$4.50bn from everything else

Two customs tables placed side by side produce the structure. The country table gives the total; the commodity-by-country table gives the semiconductor component. The remainder is arithmetic.

Source: Korea Customs Service. Own calculation. Percentages of total trade are not shown because the two tables differ in coverage only by product, not by partner or period.

Three months, one picture. Semiconductors bring in $8bn to $10bn a month and the rest of the trading relationship returns roughly $4.5bn of it. The headline surplus is not a broad-based position; it is the net of two large and opposing flows, one of which is a single four-digit tariff line.

What sits in the deficit

The import side of the relationship is no longer narrow. Korea bought $16.29bn of goods from China in July against $21.66bn of exports, an import-to-export ratio of 75.2 per cent. Battery materials and intermediate chemicals, electrical and electronic finished goods, machinery components and consumer products all appear in that column.

The older description of this relationship — Korea supplies intermediate goods, China assembles — no longer fits. Both economies now sit inside each other’s supply chains, and outside semiconductors the flow has been running towards Korea for years. That is what a stable $4.5bn monthly deficit in everything else represents.

98 per cent of the monthly change

Attribution settles the question of which side drives the aggregate. Between June and July the bilateral surplus widened by $1.76bn. The semiconductor balance widened by $1.72bn over the same month, which is 98 per cent of the total change. The non-semiconductor balance moved from -$4.54bn to -$4.50bn, a change of $40m.

So the monthly expression of the bilateral surplus is written almost entirely by one product. When the surplus grows, semiconductors grew; when it shrinks, semiconductors shrank. The rest of the relationship contributes a level, not a direction.

Adding Hong Kong widens the exposure rather than diluting it. Hong Kong functions largely as a transit point for cargo bound for the mainland, and Korea’s net semiconductor balance with the territory was $4.33bn in July. Taken together, the Greater China semiconductor surplus runs at roughly $14bn a month: $12.36bn in May, $14.19bn in June and $14.21bn in July. Reading China in isolation understates the dependence rather than overstating it.

Where this goes wrong in practice

Reading the headline balance as a diversified surplus. The same month, from the same source, supports both “a $5.38bn surplus with China” and “a $4.50bn deficit with China excluding chips”. Neither is wrong. A total is a residual of opposing flows, and the sign of the residual says nothing about concentration.

Treating China and Hong Kong as separate markets. Statistics stop at borders and cargo does not. A share of what clears in Hong Kong continues to the mainland, so the China column alone understates semiconductor exposure to Greater China.

Comparing two figures measured differently. Customs records exports FOB and imports CIF, so the import side carries freight and insurance that the export side does not. On a goods-only basis the non-semiconductor deficit is somewhat smaller than the $4.50bn printed above.

Taking HS 8542 for the semiconductor industry. The line covers integrated circuits. Equipment sits in HS 8486 and materials elsewhere, so this subtraction isolates a product, not a sector — and the surplus that product generates is itself mostly a price phenomenon rather than a volume one.