Officials check news about the U.S. presidential election in the dealing room of Hana Bank in Seoul on Nov. 6, 2024. (Image courtesy of Yonhap)
SEOUL, Nov. 7 (Korea Bizwire) — Donald Trump’s return to the White House is expected to have a significant impact on the export-driven South Korean economy and increase market volatility as he has warned of protectionist policies, decoupling from China and other drastic policy shifts across the board, experts said Thursday.
“If the policy stance stressed by Trump is materialized, it is expected to affect our economy considerably. Given features of our economy with high external dependency, uncertainties in our industry environment would grow bigger,” Finance Minister Choi Sang-mok said during a meeting with relevant ministers to assess the outcome of the U.S. presidential election.
A key economic concern for South Korea is his possible implementation of sweeping tariffs.
Last month, Trump said that tariff “is the most beautiful word in the dictionary,” vowing to impose a minimum 10 percent, and up to 20 percent, tariff on all imported goods, and raise tariffs on imports from China to as high as 60 percent.
According to a report by the Korea Institute for International Economic Policy, the policy of the “universal baseline tariff” of 10 percent, if levied, could slash South Korea’s exports by US$44.8 billion per year. The real gross domestic product could also shrink by up to 0.67 percent.
“Such a broadscale use of tariffs would bring down the global trade volume and shrink investment,” said Joo Won, a researcher at Hyundai Research Institute.
“Weak global demand would make a serious dent in the export-oriented South Korean economy, while exports are already projected to slow down through the first half of next year in line with a semiconductor cycle,” he added.
The finance ministry earlier presented a 2.2 percent economic expansion for South Korea next year, slowing from this year’s anticipated 2.6 percent growth.
Higher tariffs would result in mounting inflationary pressure and weak domestic demand in the U.S., which could also adversely affect South Korean exports, according to experts.
There have also been growing concerns about greater trade pressure by the U.S. on South Korea, given America’s growing trade deficit with the Asian partner.
In 2023, the U.S. suffered a trade deficit of $44.5 billion in trade with South Korea, up sharply from a $13.2 billion deficit in 2018.
The $44.5 billion marked the highest-ever surplus for South Korea in its bilateral trade with the U.S., and the figure for the first nine months of this year came to $39.9 billion, according to government data.
“In 2018, the first-term Trump administration demanded the revision of the Korea-U.S. free trade agreement, citing its trade deficit,” said Chang Sang-sik, an expert from the Korea International Trade Association.
“Though it would not be easy for Trump to revisit the pact only with executive orders, there are chances of his government seeking other restrictive measures, just as was the case with steel tariffs under its Section 232 tariff rules,” he added.
Adding to woes is Washington’s acceleration of the decoupling from China and the further shift in supply chains.
Trump staged a grueling trade war with China during his first presidency by levying high tariffs on Chinese imports for what he called China’s unfair practices, such as currency manipulation and technology theft.
Should Trump again take such hawkish policies against China, it would trigger retaliatory measures from Beijing, leading to further diversion in trade and investment between the two economies and greater economic and geopolitical fragmentation across the globe, the experts note.
“Despite diversification efforts, the South Korean industry, including the semiconductor sector, is still quite dependent on China. Some say South Korean firms would benefit from the conflict, but a slowdown in the Chinese economy will ultimately worsen broader economic circumstances for us,” said Song Young-gwan, an expert from the Korea Development Institute.
Expected unpredictability and policy discontinuity are widely projected to increase volatility in the foreign exchange market as well.
The South Korean currency weakened sharply against the U.S. dollar to drop to a two-year low Wednesday.
(Yonhap)
