U.S. Tariff Plan Poses Major Risk to South Korea’s Export-Driven Economy, Experts Warn

SEOUL, April 3 (Korea Bizwire) — South Korea’s economy will likely face headwinds as the U.S. administration’s plan to impose “reciprocal” tariffs is expected to deal a severe blow to the country’s shipments to the United States, while seriously disrupting the global market that may again adversely affect South Korean exports, local experts said.

They expressed serious concerns for South Korea’s export-dependent economy as the Donald Trump administration has been rolling out protectionist trade policies, including 25 percent tariffs on all steel and aluminum imports, as well as equally high duties on foreign made cars.

The Trump administration announced a 10 percent baseline tariff for all countries and country-specific reciprocal tariffs, including 26 percent duties for South Korea, on Wednesday (U.S. time). The baseline and reciprocal tariffs will go into effect at 12:01 a.m. Saturday (U.S. time) and 12:01 a.m. next Wednesday, respectively.

“With the U.S., once the leader of the global free trade system, putting up more barriers surrounding its market, the global economy will likely face a slowdown or recession,” said Austin Chang, president of the institute for international trade under the Korea International Trade Association (KITA), noting South Korea, in particular, is expected to suffer more damage due to its heavy reliance on exports for growth.

As of 2023, trade accounted for 88 percent of South Korea’s gross domestic product, according to data from the World Bank.

A recent report by an economic research institute under the Industrial Bank of Korea showed South Korea’s yearly exports will likely decrease 12.79 percent, or US$13.2 billion, from the 2024 tally if the U.S. increases its tariff rate on Korea by 25 percent.

Uncertainties deriving from the U.S. tariffs are expected to gradually stabilize over six months, but if Washington threatens to further increase its duties, the Korean economy could suffer damage for a longer period of time, the report said.

Last year, South Korea exported a record $127.8 billion worth of goods to the U.S., while importing $72.1 billion, resulting in a trade surplus of $55.7 billion.

It marked the first time Seoul’s trade surplus with the U.S. exceeded $50 billion. Still, it left South Korea as a major target of Trump’s tariff scheme, which aims to curtail America’s trade deficits while attracting foreign investment and promoting local manufacturing for job creation.

Seoul’s exports have already seen effects from U.S. tariffs, with its accumulated outbound shipments in the first quarter falling 2.07 percent from a year earlier to $159.9 billion, according to data compiled by the Ministry of Trade, Industry and Energy.

The country had reported steady growth in exports last year, logging an 8 percent on-year increase in the first quarter, 10.1 percent in the second, 10.5 percent in the third and a 4.2 percent rise in the fourth quarter.

“The U.S. tariff policy did not have a direct impact on export prices or contracts but it certainly led to an increase in trade uncertainties,” the ministry said, noting the volatility in the global trade market will likely continue.

In particular, Korea’s outbound shipments of automobiles and steel products contracted 1.3 percent and 6 percent on-year, respectively, in the January-March period.

In a recent report, JP Morgan Chase slashed South Korea’s growth outlook for 2025 by 0.3 percentage point to 0.9 percent, reflecting the potential negative impact of U.S. tariff measures on the country’s exports.

The projection is far lower than that of the Organization for Economic Cooperation and Development (OECD), which earlier forecast Asia’s fourth-largest economy to expand 1.5 percent this year.

In February, the Bank of Korea cut its 2025 growth outlook to 1.5 percent from the 1.9 percent projection presented in November.

Eyes are now on how the Seoul government will negotiate with Washington to possibly lower the tariff rate it will face.

“Even though we are the 13th free trade agreement (FTA) partner of the United States and have made significant contributions to the U.S. auto, semiconductor and battery industries, the U.S. administration decided on a relatively high (reciprocal) tariff rate for South Korea,” said Yeo Han-koo, South Korea’s former trade minister currently working as a senior fellow at the Peterson Institute for International Economics.

“But since we are at the starting line of negotiations, not the finish line, we should not emotionally or hastily respond to the situation,” he advised.

“Cooperation between the public and private sectors is important because it is difficult for a single company to make big investments, and we should also strategically join hands with Japan, which is in a similar position as us.”

Yeo also stressed that the country should “swiftly” find stability in domestic politics to allow communication between the two countries’ leaders, referring to the impeachment of President Yoon Suk Yeol following last year’s martial law fiasco.

The South Korean government has been closely communicating with the U.S. following the Trump administration’s announcement of plans to roll out a series of tariff measures earlier this year.

Following Industry Minister Ahn Duk-geun and Trade Minister Cheong In-kyo’s recent visits to Washington, South Korea launched working-level consultative bodies with the U.S. on tariff negotiations and promoting bilateral cooperation in the shipbuilding and energy industries.

Since then, Seoul has expressed interest in taking part in the Alaska liquefied natural gas (LNG) project, a key agenda of the Trump administration.

The potential participation in the project has been considered a prominent bargaining chip for South Korea in tariff negotiations as increasing imports of Alaskan gas could help reduce the country’s trade surplus with the U.S.

Last week, South Korean conglomerate Hyundai Motor Group announced its plan to invest $21 billion in the U.S. through 2028, which breaks down to a $8.6 billion investment in the automotive sector, $6.1 billion in the steel, component parts and logistics industries, and $6.3 billion in future industry sectors and energy.

Experts said the issues mentioned in the U.S. Trade Representative’s (USTR) annual report on foreign trade barriers will likely be on the negotiation table.

Earlier this week, the USTR issued the 2025 National Trade Estimate Report on Foreign Trade Barriers (NTE), which mentioned 21 non-tariff measures by South Korea.

The 21 measures included sanitary and phytosanitary barriers on agricultural products, such as restrictions on U.S. beef products deriving from animals more than 30 months of age, and digital trade barriers, such as network usage fees, proposals to regulate online platform operators for fair competition and restrictions on the export of location-based data.

Seoul’s regulations on emission-related components (ERC) of vehicles and the defense offset trade program were also on the list.

“I think there are some trade barriers listed on the NTE report the government can negotiate with the U.S., such as cloud security certification and ERC regulations,” Chang said.

“We can also propose ways to reduce the trade surplus with the U.S., such as expanding energy imports, car production in America and weapons purchases, and bolstering cooperation in shipbuilding, which the U.S. has needs in,” he added.

In an emergency response meeting held after Trump’s announcement, Industry Minister Ahn Duk-geun said the government will “swiftly” devise support measures for industries likely to suffer damage from U.S. tariffs and push for “active” negotiations with Washington to minimize the impact on Korean businesses.

“We regret that the U.S. tariff measures, which have a significant impact on the global trade environment, have become a reality,” Ahn said.

He said the government is taking a long-term approach in tariff negotiations with the U.S., comparing it to a “marathon” rather than a single-round match.

(Yonhap)