Taiwan’s trade surplus has been on the decline in the past two years, with the rising trade deficit with South Korea causing the greatest concern. This study finds that the increasing deficit with South Korea reflects the following situations: One, South Korea has successfully restructured its economy and has seen an acrosstheboard improvement in its competitiveness. Two, activities in R&D and brand name promotion have delivered great benefits for Samsung and LG groups and transformed the relationship between Taiwanese and Korean electronics and information industries from that between competitors to vertical division of labor. The writers recommend that in the future, to cope with the competition from Korean conglomerates and the rising trade deficit with Korea, the government should in the short term identify Taiwanese products with high export competitiveness and assist small and medium enterprises in an integrated drive to strengthen their market promotion in Korea. In the mid to long term, the government should step up efforts to promote the development of own brand names and the strengthening of R&D to raise Taiwan's technical capabilities.