Seoul: South Korea's economy is anticipated to encounter significant challenges following the U.S. administration's announcement of a 26 percent "reciprocal" tariff on imports from Seoul. This development is expected to severely impact South Korea's exports to the United States and disrupt global markets, potentially exacerbating the challenges faced by South Korean exporters.
According to Yonhap News Agency, local experts have expressed grave concerns about the impact of the U.S.'s protectionist trade policies on South Korea's export-driven economy. The administration under Donald Trump has been implementing tariffs of 25 percent on steel and aluminum imports and similar duties on foreign-made cars.
The newly announced tariffs, which include a 10 percent baseline tariff for all countries and specific reciprocal tariffs for certain nations, are set to take effect shortly. With the U.S. erecting more barriers around its market, South Korea is expected to experience significant economic damage due to its reliance on exports, as highlighted by Austin Chang, president of the institute for international trade under the Korea International Trade Association (KITA).
Data from the World Bank shows that trade accounts for 88 percent of South Korea's gross domestic product as of 2023. A report by an economic research institute under the Industrial Bank of Korea predicts a potential decrease of 12.79 percent, or US$13.2 billion, in South Korea's yearly exports if the U.S. tariffs increase by 25 percent.
The U.S. tariffs are anticipated to create uncertainties that may stabilize over six months. However, if Washington further increases duties, South Korea's economy could face prolonged damage. Last year, South Korea recorded a trade surplus of $55.7 billion with the U.S., marking the first time this surplus exceeded $50 billion.
Seoul's exports have already been impacted by existing U.S. tariffs, with a decrease in outbound shipments in the first quarter. The Ministry of Trade, Industry and Energy noted that while the tariffs have not directly affected export prices or contracts, they have increased trade uncertainties.
In light of the U.S. tariff measures, JP Morgan Chase has reduced South Korea's growth outlook for 2025 by 0.3 percentage points to 0.9 percent, a projection lower than the 1.5 percent forecast by the Organization for Economic Cooperation and Development (OECD).
The focus now is on how the South Korean government will negotiate with Washington to reduce the tariff rate. Former trade minister Yeo Han-koo emphasized the importance of not responding emotionally and urged cooperation between public and private sectors.
The South Korean government has been actively communicating with the U.S. following the announcement of the tariff measures. Recent visits by Industry Minister Ahn Duk-geun and Trade Minister Cheong In-kyo to Washington initiated working-level consultative bodies focused on tariff negotiations and bilateral cooperation.
Additionally, South Korea is exploring participation in the Alaska liquefied natural gas (LNG) project, a potential bargaining tool in tariff negotiations. South Korean conglomerate Hyundai Motor Group has also announced a $21 billion investment in the U.S. through 2028, across various sectors.
The U.S. Trade Representative's annual report on foreign trade barriers will likely influence negotiations, highlighting 21 non-tariff barriers by South Korea. These include measures related to agricultural products, digital trade, and vehicle emission regulations.
In response to the U.S. announcement, Industry Minister Ahn Duk-geun emphasized the need for swift support measures for affected industries and active negotiations to minimize the impact on Korean businesses. He compared the ongoing tariff negotiations to a "marathon," requiring a long-term approach.