President Donald Trump (Image courtesy of Yonhap)
SEOUL, March 5 (Korea Bizwire) — The escalating tariff war initiated by U.S. President Donald Trump is disrupting the decades-old global free trade system, triggering a shift toward protectionism among major economies, including China. The retreat from free trade threatens export-driven economies like South Korea, which now faces mounting challenges amid intensifying U.S.-China economic rivalry.
Free Trade in Crisis as U.S.-China Trade War Escalates
On March 4, Trump imposed new tariffs on China, Mexico, and Canada, prompting immediate retaliatory measures from China and Canada. The move has rattled global markets, with additional broad-based tariffs and sector-specific levies, such as on automobiles, expected to follow.
This aggressive stance marks a departure from the World Trade Organization (WTO)-led multilateral trade system, which had fostered stable trade relations through free trade agreements (FTAs). Instead, Trump’s policies prioritize national interests over global economic cooperation, accelerating the breakdown of traditional trade alliances.
The escalating U.S.-China rivalry has further complicated matters. For decades, the global economy operated on a model where the U.S., the world’s largest market, consumed goods produced in China, the world’s factory.
Trump’s rejection of this structure is fueling economic tensions, particularly in high-tech industries such as artificial intelligence (AI) and semiconductors, heightening concerns for countries caught in the middle.
“The WTO’s multilateral trade system and the complementary role of FTAs are clearly deteriorating, pushing global trade into a significant crisis,” said Cho Seong-dae, head of trade policy research at the Korea International Trade Association. “Korean companies that built their strategies around intricate global supply chains are now facing an era of uncertainty.”
Kim Young-han, an economics professor at Sungkyunkwan University, warned that a protectionist world order could threaten industries and firms that lack strong technological and quality-based competitiveness.
South Korea’s Export-Heavy Economy Faces a Critical Test
The disruption of the free trade system is particularly alarming for South Korea, which relies heavily on exports. As of 2024, exports accounted for 35.7% of the country’s GDP, with the U.S. and China making up 38.1% of total exports—a significant exposure to both economic giants.
While South Korea has an FTA with the U.S., it remains vulnerable to Trump’s broad-based tariff policies, potentially facing similar tariff burdens as Canada and Mexico.
Additionally, if China adopts stronger protectionist policies in response to U.S. pressure, South Korea could suffer collateral damage in the ongoing trade battle between the two superpowers.
South Korea’s trade surplus with the U.S. has expanded at an annual average growth rate of 27.5% over the past three years, reaching a record $55.7 billion (81 trillion won) in 2024.
The country ranks as the eighth-largest contributor to the U.S. trade deficit, following China, Mexico, and Vietnam. Given Trump’s emphasis on reducing trade imbalances, analysts warn that South Korea could face retaliatory tariffs.
South Korean automakers are particularly at risk. Trump has proposed a 25% tariff on imported cars, a move that could severely impact South Korea’s auto exports, which rely on the U.S. for 50% of sales.
Strategic Shift Needed: Diversifying Markets and Enhancing Technology
Experts argue that South Korea must shift away from price-based competition and instead focus on technological and quality differentiation in key industries, such as defense and shipbuilding, where it holds a competitive edge. Expanding export markets beyond the U.S., China, and ASEAN nations is also seen as a critical strategy.
“South Korea has long benefited from free trade, but the era of relying on low prices is over,” said Jang Sang-sik, head of international trade research at the Korea International Trade Association. “It’s time to adopt a country-specific, technology-driven approach to exports.”
He further emphasized the need for South Korea to pursue new bilateral FTAs and expand its market reach to regions like Europe, the Middle East, Latin America, Africa, and especially India.
As the global trade landscape continues to shift, South Korea faces a pivotal moment in adapting its economic strategy to withstand the pressures of a protectionist world.
Ashley Song (ashley@koreabizwire.com)
