Intra-industry trade between South Korea and Vietnam·China Increased... Need to Stabilize Supply Chain

-Over the past 7 years, the dependence on intra-industry trade has risen 16.8%p in Vietnam and 8.9%p in China... -

- Expansion of exports and imports between Korea and both countries, mainly in the high-tech electronics and communication industries -

It has been pointed out that strategies for the global supply chain stabilization are required as the degree of dependence on intra-industry trade is on the increase between South Korea and Asian economies such as Vietnam and China.

“Intra-industry trade” can be defined as simultaneous import and export of similar goods within the same industry. For instance, South Korea exports and imports semiconductor chips to and from China at the same time. This practice can be categorized as intra-industry trade. As intra-industry trade expands, supply and demand shocks from overseas markets are more likely to spread to the domestic market, and the possibility of synchronizing the domestic market to keep up with overseas economic fluctuations increases. Therefore, supply chain management becomes critical.

According to a report titled “Current Status of Intra-industry trade in South Korea and Supply Chain Management Strategy” issued by the Institute for International Trade (President: Choi Yong-min) of the Korea International Trade Association on December 16^th, South Korea's reliance on intra-industry trade reached 42.7 percent of total exports as of 2019 and has been steadily rising since it recorded 31.8 percent in 2008 as Korean export companies have established overseas production bases and the increased intermediate goods trade has expanded the division of labor between countries.

The dependence on intra-industry trade of South Korea with four trading partners was as high as China (39.6%), Japan (32.8%), Vietnam (25.1%) and the United States (20.7%). In particular, the reliance on intra-industry trade with Vietnam and China jumped 16.8 percentage points and 8.9 percentage points from 2012 to 2019, respectively. In contrast, the dependence on intra-industry trade with advanced countries such as the United States and Japan remained unchanged.

The report stated, “The intra-industry trade with Vietnam and China rapidly expanded mainly in the electrical and electronics sectors,” and elaborated, “With active trade in the semiconductor industry with China, the share of semiconductor products within the industry increased from 48.3 percent in 2012 to 62.0 percent in 2019, and with Vietnam, intra-industry trade of home appliances (4.2% → 63.9%) and wireless communication devices (20.6% → 64.6%) increased significantly.”

As another feature, the report pointed out, “When it comes to intra-industry trade with Vietnam and China, South Korea imports low-price products from them and exports high-price products to them,” and added, “'Vertical intra-industry trade with superior quality' is emerging, as the export unit price is higher than the import unit price.”

Kang Sung-eun, a researcher at the Institute for International Trade of the Korea International Trade Association, said, “The high degree of reliance on intra-industry trade may expand supply chain risks. It is required to closely monitor the industries with high intra-industry trade dependence and work on various strategies to stabilize the supply chain.”