South Korea’s Current Account Surplus with U.S. Declines for First Time in Six Years Amid Rising Intellectual Property Payments

South Korea’s current account surplus reached a historic high of $123.05 billion in 2023, surpassing the previous year’s $99.97 billion, according to provisional data released by the Bank of Korea on June 19. Despite this overall growth, the country’s current account surplus with the United States declined for the first time in six years, while the deficit with China expanded for the fourth consecutive year.

The current account surplus with the U.S. stood at $111.42 billion in 2023, down from $116.97 billion in 2022. This reduction occurred despite an increased goods surplus fueled by higher exports of semiconductors and information and communication devices. The decline was primarily driven by a significant widening of the services account deficit, attributed to increased payments for intellectual property rights and travel services.

Park Seong-gon, Head of the International Balance of Payments Team at the Bank of Korea’s Economic Statistics Department 1, explained, "Although exports of IT items such as semiconductors and smartphones to the U.S. remained strong, the decrease in exports of major tariff items such as automobiles and general machinery since last year, along with increased payments for intellectual property rights and travel, significantly widened the services account deficit, resulting in a reduced current account surplus with the United States."

The current account balance with China recorded a deficit of $25.32 billion, widening from $23.45 billion the previous year. While the primary income account surplus grew due to increased dividend income, the goods account deficit worsened as exports of chemical and steel products declined. Park noted that China’s growing self-sufficiency in intermediate goods and slower domestic demand have contributed to the persistent decrease in South Korean exports of chemical products, steel products, and smartphone components. Conversely, imports of Chinese automobiles, home appliances, and IT devices into South Korea continued to rise steadily.

South Korea’s current account deficit with Japan increased to $20.3 billion from $17.97 billion in 2022. This was driven by decreased exports of petroleum products and increased imports of semiconductor manufacturing equipment. The services account deficit also expanded due to a surge in travel payments, reflecting a record number of Korean travelers visiting Japan.

Conversely, the current account surplus with the European Union (EU) expanded to $24.42 billion from $22.22 billion, supported by higher exports of semiconductors and passenger cars and a larger primary income surplus due to decreased dividend payments.

The surplus with Southeast Asia widened to $71.84 billion from $63.44 billion, bolstered by increased semiconductor exports and a notable rise in inbound travelers, particularly from Taiwan. This led to higher travel income and a surplus in the services account.

The current account deficit with the Middle East narrowed to $49.75 billion from $67.96 billion, reflecting reduced imports of crude oil, gas, and other energy products amid falling international oil prices. The surplus with Central and South America also grew to $7.41 billion from $2.03 billion.

Regarding investment flows, South Korean residents’ overseas direct investment slowed to $41.23 billion from $49.73 billion in 2022. While investments in the EU and Japan increased, those in China, the U.S., and Southeast Asia declined. Park highlighted that "investment by U.S. big tech companies in building AI data centers in Korea had some impact last year."

Overseas portfolio investment by South Korean residents surged to $140.28 billion from $66.97 billion, driven by a 2.7-fold increase in net purchases of overseas equities, particularly U.S. tech stocks. Overseas equity investments rose from $42.16 billion to $114.35 billion, and bond investments increased modestly to $25.93 billion.

Foreign portfolio investment in South Korea also rose sharply to $52.54 billion from $21.36 billion, mainly due to inflows into domestic bonds from the EU and Southeast Asia. Domestic equity investments, however, shifted from a net inflow of $2.39 billion to a net outflow of $5.75 billion, reflecting reduced investments from Southeast Asia and other regions. Domestic bond investments increased substantially to $58.3 billion, primarily from the EU and Southeast Asia.

The Bank of Korea’s data underscores complex shifts in South Korea’s international trade and investment landscape, with intellectual property payments and changing regional dynamics playing key roles in the evolving current account balances.