South Korea’s Trade Reset: Diversifying Beyond the US and China

Amidst increasing global uncertainties surrounding trade and commerce, South Korea is exploring new markets beyond its traditional exporting partners—the US and China. In this quest, Southeast Asia has emerged as a viable partner capable of resolving Seoul’s strategic conundrums. While Seoul’s move towards trade diversification began a decade ago following a geopolitical tussle with Beijing, two notable developments have accelerated the shift: Washington’s imposition of ‘reciprocal tariffs’ and Beijing’s growing industrial capacity. Given this context, this piece examines South Korea’s trade relationships and the prospects of Southeast Asia as a sustainable alternative to the US and Chinese markets.

The Case for Trade Diversification

South Korea is an export-oriented economy, primarily dependent on the US and China. Over the years, the two have consistently been Seoul’s largest and second-largest trading partners, respectively, accounting for approximately 39-40 percent of its total exports. However, with recent developments such as the US-China Trade War and Trump 2.0’s ‘Liberation Day Tariffs’, South Korea’s exports to the US and China have declined. A year-on-year drop in South Korea’s total export value of around US$63 billion in 2019 and US$30 billion in 2020 has exposed the threats of economic dependence, reigniting the debate about Seoul’s strategic vulnerabilities and its trade reliance on the US and China.

Figure 1: US+China’s Share in South Korea's Total Export Value (2015 - 2024)

Source: Compiled by the author based on official trade statistics; Unit: Thousand USD

South Korea depends heavily on China, as shown in Figure 2. In 2018, Seoul exported goods worth US$162 billion to China, accounting for approximately 27 percent of its total exports. However, as the US-China trade war began in 2018, supply chains were severely affected. As a result, South Korea’s exports to China, primarily composed of intermediary goods such as semiconductors, dropped. This also led to a decline in its total exports to the world in subsequent years (Figure 1), illustrating Seoul’s heavy economic dependence on China.

Figure 2: Korea's Exports to China (2015-2024)

Source: Compiled by the author based on official trade statistics; Unit: Thousand USD

On the other hand, the US, once considered a reliable ally and a free-trade champion, has also turned its back. Following Donald Trump’s return to the White House, Washington has increased the costs of trade with its major allies in Asia, including South Korea. In 2025, President Trump imposed a ‘reciprocal tariff’ of 25 percent on South Korean imports. Although this was later reduced to 15 percent, it dealt a heavy blow to South Korea’s automobile industry, a key export sector. Following this, South Korea’s automobile industry registered a 7.5 percent decrease in its exports to the US in September 2025 compared to the same period last year. Furthermore, there is also an increasing unpredictability surrounding Trump’s trade policies vis-à-vis the semiconductor and electronics industry.

In the backdrop of these developments, calls for South Korea to diversify its trade away from China and the US have grown louder. To bolster its economic security, Seoul is now investing heavily in expanding trade ties, particularly with markets across Southeast Asia.

In the backdrop of these developments, calls for South Korea to diversify its trade away from China and the US have grown louder. To bolster its economic security, Seoul is now investing heavily in expanding trade ties, particularly with markets across Southeast Asia.

Korea’s Deepening Economic Engagement with Southeast Asia

Amid this trade uncertainty, there is a growing emphasis on Southeast Asian markets. This is not a new aspect of Seoul’s strategic policy toward the Association of Southeast Asian Nations (ASEAN). Rather, the two share a range of agreements and policy frameworks aimed at fostering economic cooperation and deepening their strategic collaboration. Seoul’s push for trade diversification began in 2016, after China adopted coercive economic measures following the controversy over the deployment of the Terminal High Altitude Area Defense (THAAD) missile-defence system. When then-President Moon Jae-in introduced the New Southern Policy (NSP) framework, it marked the first time Seoul explicitly placed Southeast Asia at the centre of its trade strategies. Before that, in 2007, South Korea and ASEAN had signed the Korea-ASEAN FTA (AKFTA). To further deepen their economic and developmental commitments, the two also joined the Regional Comprehensive Economic Partnership (RCEP) in 2020.

As a result of the aforementioned policy cooperation, Seoul’s exports to ASEAN have grown manifold. In the last decade, it registered a cumulative growth of 52 percent in its export value to the bloc, signalling strengthening cooperation between the two. However, despite several cooperative frameworks, South Korea has been unable to leverage ASEAN’s large market size. As Figure 3 shows, ASEAN’s share in South Korea’s total export value has consistently been lower than that of the US and China. While the share of the latter two has consistently hovered around 40 percent, ASEAN’s share has never exceeded 18 percent. This gap is largely attributable to ASEAN’s deep economic integration with China, its largest trading partner.

Figure 3: US + China's Share vs. ASEAN's Share in South Korea's Total Export Value (2015-2024)

Source: Compiled by the author based on official trade statistics; Unit: Thousand USD

According to 2024 trade figures, ASEAN imported around 25 percent of its goods from China, accounting for US$481 billion. On the other hand, goods imported from South Korea were worth US$128 billion, or 7 percent of the bloc’s total imports, as shown in Figure 4. Notably, ASEAN’s top imported products comprise electronic machinery, mineral fuels, and nuclear reactors. While these come from both South Korea and China, the imports from China far outweigh those from Korea. This gap can be attributed primarily to two reasons: growing cooperative engagement between ASEAN and China, and the latter’s expanding manufacturing capacity.

Figure 4: China vs. South Korea's Export Value to ASEAN (2020-2024)

Source: Compiled by the author based on ASEANstats; Unit: Thousand USD

To address this gap, South Korea has enhanced its bilateral cooperation with Southeast Asian countries. It has signed bilateral FTAs with many countries in the region; the recent Korea-Malaysia FTA is the latest development in this regard. While a multilateral FTA serves as a crucial starting point for economic cooperation among signatories, it results in shallower trade liberalisation, especially because the entire bloc negotiates collectively and adopts a single tariff rate, considering the diverse priorities of all nations. A bilateral FTA, on the other hand, results in deeper liberalisation and fosters international trade based on comparative advantage. Thus, South Korea’s pursuit of bilateral FTAs signals a shift toward deeper, more strategic economic partnerships with ASEAN member states.

According to the trade figures for 2024, Vietnam is South Korea’s largest trading partner among ASEAN states, accounting for over 50 percent of its total exports to the region, followed by Singapore (16 percent), Malaysia (9 percent), and the Philippines (9 percent). However, despite Korea’s numerous bilateral FTAs in the region, challenges persist. For instance, despite the Korea-Cambodia FTA, there has been little to no trade between the two. In 2024, Cambodia accounted for a mere 1 percent of South Korea’s exports to ASEAN. One primary reason behind this is China’s economic hegemony in the region.

South Korea’s pivot toward Southeast Asian nations offers a glimpse into Seoul’s strategic pursuit of market diversification. However, given China’s strategic engagement vis-à-vis Southeast Asia, it remains doubtful whether the region can help South Korea offset losses from its traditional markets in the short- to mid-term.

Efforts in Vain?

The US-China trade rivalry and Trump’s ‘Liberation Day Tariffs’ have seriously impacted South Korea’s exports. Not only have the two phenomena plummeted South Korea’s export value in subsequent years, but they have also exposed the risks inherent in dependence on any single economy. In light of this, South Korea’s pivot toward Southeast Asian nations offers a glimpse into Seoul’s strategic pursuit of market diversification. However, given China’s strategic engagement vis-à-vis Southeast Asia, it remains doubtful whether the region can help South Korea offset losses from its traditional markets in the short- to mid-term. In the long term, Korea can continue to invest in increasing its share of global trade, focusing on making its exports more competitive. Nonetheless, to ensure export sustainability, Seoul should also seek opportunities to cultivate new relationships with developing and emerging markets, particularly those that are likewise looking to diversify their trading ties. India, Latin America, and Africa can serve as viable trade partners for South Korea in this regard.

Abhishek Sharma is a Junior Fellow with the Strategic Studies Programme at the Observer Research Foundation.

Shreya Mishra is a Research Intern at the Observer Research Foundation.

• International Affairs
• China
• East Asia
• USA and Canada
• ASEAN Korea trade relations
• Korea ASEAN economic ties
• Korea ASEAN Free Trade Agreement
• Korea bilateral FTAs in Southeast Asia
• Korea exports to Southeast Asia
• Korea global market diversification
• South Korea dependence on China
• South Korea trade diversification
• Trump reciprocal tariffs Korea
• US China trade war impact on Korea

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