Seoul: China has announced a reciprocal 34 percent tariff on all imports from the United States, effective April 10, alongside implementing export restrictions on rare earth elements. This move comes as a response to the US tariffs imposed on all Chinese goods entering the American market.
According to Yonhap News Agency, the escalating trade tensions between the US and China are of significant concern to South Korea, as both nations represent the largest export markets for the country. A prolonged trade war between these economic giants could severely impact South Korea's economy. The new tariffs by the US, described as "reciprocal," include a 25 percent levy on South Korean products starting April 9, effectively undermining the Korea-US free trade agreement established in 2012.
The situation is further complicated by the US imposing a 34 percent tariff on China and a 46 percent tariff on Vietnam, both key production bases for South Korean companies. The reduced flow of exports to the US through these countries is anticipated to create additional challenges for South Korean businesses.
South Korea's economic growth has already shown signs of strain, with a mere 0.066 percent increase in real GDP in the fourth quarter of last year. According to the Bank of Korea, this places the country 29th out of the 37 countries in the Organization for Economic Cooperation and Development and China. Additionally, JP Morgan Chase has adjusted its forecast for US GDP growth to a contraction of 0.3 percent due to the anticipated impact of the tariffs, which could further undermine South Korea's export-driven economy.
In the face of these challenges, South Korea faces difficulty in mounting retaliatory responses similar to those of China and the European Union, largely due to internal political issues. The country is currently in a state of political turmoil following the impeachment of its president, with a presidential election set for June 3. Despite these obstacles, South Korea must remain proactive in negotiations with the Trump administration.
Summit-level talks may prove difficult due to the leadership vacuum, but it is essential for South Korea to prepare thoroughly at the working level. The country should present concrete data and compelling justifications to persuade the US of its economic contributions, emphasizing that the new tariff rates are disproportionately high compared to those of other countries with free trade agreements with the US.
Moreover, South Korea should address misconceptions about its non-tariff barriers, highlighting that its effective tariff rate for US imports was 0.79 percent in 2024, contrary to the US administration's claim of a 50 percent rate. The country must also seize the opportunity for cooperation in sectors like shipbuilding and energy as a potential bargaining chip.
In response to these economic challenges, the Korean government has proposed a 10 trillion won ($6.8 billion) supplementary budget aimed at recovering from wildfire damage and stimulating domestic demand. Expanding support for exporters to the US should be a focal point of this budget, which legislators are urged to pass promptly to address the urgent economic situation without allowing political distractions to hinder progress.