Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / Why India Is Becoming Asia's New Export Powerhouse While South Korea Stalls
Transcript
- Lucas: So we got trade balance data this morning — the deficit widened to nearly 78 billion dollars in May, which is the widest in fifteen years. And if you look at emerging market ETF flows this week, you see a really clear split: China and India are up, while South Korea and Taiwan are getting hammered. Luna: That South Korea number is brutal — EWY down 17 percent in five days. What's driving that? Lucas: Semiconductors, mostly. South Korea's export engine is memory chips, and demand is softening as China ramps up its own production. Plus the US export controls on AI chips are hitting Samsung and SK Hynix indirectly — they can't sell their highest-end products to China, and Chinese buyers are shifting to domestic alternatives. Luna: So China's self-sufficiency push is actually working? The FXI rally this week — up 4.8 percent — suggests investors think so. Lucas: Exactly. China's semiconductor imports dropped 12 percent year-over-year in the latest data. Meanwhile, India's INDA is up 3.2 percent this week, and that's not just pharma anymore. Electronics exports from India grew 22 percent last quarter — smartphones, laptops, even some chip assembly. Luna: Is that the Apple effect? Foxconn and Wistron ramping up in Tamil Nadu? Lucas: Partly. Apple now assembles about 14 percent of iPhones in India, and that number is climbing. But it's broader — the production-linked incentive scheme is drawing in component makers from Taiwan and Japan. The result is that India's trade deficit with China is actually narrowing, because they're importing fewer finished goods. Luna: Meanwhile South Korea's trade surplus with China is evaporating. They used to run a $50 billion surplus — now it's under $10 billion. Lucas: Right. And the dollar isn't helping. Even though the trade-weighted dollar eased a bit to 120.7, it's still historically strong. That makes Korean exports more expensive in emerging markets, while the yen at 163 to the dollar is crushing Japan's export competitiveness too — but Japan has a more diversified export base. Luna: So the divergence we're seeing — India and China up, Korea and Taiwan down — is it structural or just a cyclical blip? Lucas: I think it's structural for Korea and India, and more cyclical for China and Taiwan. Korea's problem isn't just demand — it's that they're caught between US export controls and Chinese self-sufficiency. India, by contrast, is benefiting from the 'China plus one' strategy in a way that no other country has managed at scale. Luna: What about Taiwan? EWT dropped 10 percent this week — is that just a Korea spillover? Lucas: Partially. Taiwan is still the dominant player in advanced logic chips, so it's less exposed to memory cycles. But the market is pricing in geopolitical risk — the Strait of Hormuz headlines and the us iran escalation create a nervous environment. Plus TSMC's capital expenditure guidance disappointed last week. Luna: So if you're a business looking to source components, you're probably rethinking your supply chain. Again. Lucas: Exactly. The trade data this month just reinforces what the ETF flows are screaming: the global trading system is fracturing into winners and losers based on who can navigate export controls, currency shifts, and geopolitical flashpoints. Luna: It's a lot to unpack. And honestly, if you're finding these conversations useful — if they help you make sense of your own business decisions — maybe think about tossing a coffee our way. Lucas: Yeah, this show stays ad-free because of listener support. If today's episode was worth the price of a coffee, the link is buy me a coffee dot com slash fexingo. No pressure, but it helps keep the lights on. Luna: And we appreciate it. So back to the trade data — do you think India's momentum is sustainable? Lucas: I think so, but with a caveat. India's electronics exports are still a fraction of China's, and the infrastructure bottlenecks are real. But the policy direction is clear, and the global appetite for diversifying away from China is real. The real test will be whether India can move up the value chain from assembly to chip design. Luna: What would that take? Lucas: A functioning semiconductor fabrication plant — the one Micron and Tata are building — and a lot more engineering talent. But India graduates more engineers every year than any other country. The pieces are there. Luna: And for South Korea, is there a way out? Lucas: Short term, they need demand to rebound — which means a recovery in global IT spending. Long term, they need to diversify beyond memory into logic chips and foundry services. Samsung is trying, but it's a multi-year transition. The won weakening to 1,450 against the dollar helps exports, but it also raises input costs. Luna: So the trade deficit widening we saw in May — that's partly a reflection of these dynamics. The US is importing more from India and China, and less from Korea. Lucas: Exactly. US imports from China actually rose 4 percent year-over-year, which sounds counterintuitive given the tariffs. But a lot of it is goods that can't be easily sourced elsewhere — chemicals, machinery, some electronics. Meanwhile, imports from Korea dropped 8 percent. Luna: So the tariff war is realigning trade, but not necessarily in the way policymakers hoped. Lucas: Right. The US deficit with China is still huge, but the composition is shifting. And the deficit with Vietnam and India is growing fast as supply chains move. The real question is whether that leads to more tariff retaliation or a broader rethinking of trade policy. Luna: And the Fed — they left rates unchanged again. Does that affect this landscape? Lucas: It keeps the dollar relatively strong, which pressures emerging markets that have dollar-denominated debt. But the market is already pricing in rate cuts later this year. If the dollar weakens, it could relieve some pressure on Korea and Taiwan, but it won't solve the structural issues. Luna: So bottom line for listeners: if you're in supply chain management or trade finance, you need to watch the India-Korea divergence closely. Lucas: Absolutely. The numbers this week are a clear signal: the old Asia trade model is breaking apart. And the new one is still being written.