The economy continues to grow at a rapid pace, but South Korea's balance of trade and current account have recently switched from surplus to deficit, giving rise to some concern in Korea about its fading international competitiveness. South Korea has also run a trade deficit with the United States since 1994. Fluctuations in the value of the South Korean won, slowing worldwide demand for key products, cumulative wage increases, and strong domestic demand, especially for capital equipment, have all contributed to this phenomenon. The U.S. seeks to improve access to South Korea's expanding market and increase investment opportunities for American business. Although they have met with resistance from within the South Korean bureaucracy, President Kim's economic reform plans mark a dramatic endorsement of a more liberal, market-based economic system.
Economic considerations have a high priority in South Korea's foreign policy.
Historically, much of South Korea's prosperity was achieved through strict adherence to an export-driven market model. Although tariff rates have been reduced, other trade barriers continue to impede significant progress in opening the South Korean market to foreign products. The success of this transformation hinges to a great degree on the political success of President Kim's programs of democratization and reform. Departing from a long history of government-led growth, President Kim favors a policy of deregulation and greater reliance on market mechanisms in order to ensure continued growth and prosperity in the future. South Korean leaders appear determined to manage successfully the complex economic relationship with the United States and to continue to take a more active role in international economic fora as befits Korea's status as a major trading nation.