Seoul: U.S. President Donald Trump's recent announcement of "reciprocal" tariffs has cast a shadow over South Korea's trade dependence on the United States, intensifying uncertainties surrounding the bilateral free trade agreement (FTA) between the two nations. The protectionist move is seen as a culmination of Trump's efforts to address trade deficits, increase revenue, and bolster domestic manufacturing.
According to Yonhap News Agency, Trump declared a 10 percent "baseline" tariff on imports from all trading partners and "reciprocal" tariffs, specifically imposing a 26 percent duty on South Korean imports. These tariffs are part of Trump's strategy to rectify what he perceives as "unfair" trade practices that have disadvantaged America for too long. The baseline tariffs are scheduled to take effect on Saturday, followed by the reciprocal tariffs next Wednesday.
South Korea, heavily reliant on exports, faces significant challenges as the new U.S. tariffs, including a planned 25 percent tariff on imported cars and parts, prompt a reevaluation of its trade relations with the United States. The tariff announcement has also heightened uncertainties concerning the future dynamics of the South Korea-U.S. relationship, especially amid domestic political upheavals following President Yoon Suk Yeol's impeachment in December.
Trump unveiled the reciprocal tariffs during a White House event, characterizing them as "kind" and "common sense." An annex to the executive order outlines varying tariff rates for different countries, with South Korea facing a 26 percent tariff, placing it at the higher end among Asian FTA partners.
Wendy Cutler, vice president of the Asia Society Policy Institute and a former negotiator of the South Korea-U.S. FTA, highlighted the economic strain these tariffs could impose on Asian countries. She noted that the tariffs could lead to declining global economic growth, increased prices, and delayed business investments. Cutler also predicted that U.S. trading partners would be under pressure to respond and seek exceptions.
The tariff policy has sparked concerns about America's reliability as a trading partner. Rob Rapson, a retired U.S. diplomat, suggested that the tariffs might lead allies to question the United States' trustworthiness in maintaining the global trading system it helped establish.
South Korean officials and businesses have been bracing for the impact of the tariffs, considering the country's substantial trade surplus with the U.S., which stood at $55.7 billion last year. The introduction of reciprocal tariffs has raised alarms for businesses aiming to expand in the U.S. market, particularly in the automotive sector.
As the Trump administration plans to implement additional tariffs on imported cars and key parts, South Korea may seek to adjust its trade surplus with the U.S. in the short term. Andrew Yeo from the Brookings Institution's Center for East Asia Policy Studies noted that if the tariffs persist, South Korea might diversify its economic ties away from the U.S., potentially straining the ROK-U.S. alliance.
Observers believe that the reciprocal tariffs are just the beginning of Trump's broader trade strategy. The tariffs may prompt South Korea to renegotiate trade terms with the U.S., potentially replacing the existing FTA. Trump's willingness to negotiate new deals could lead South Korea into discussions over a revamped trade arrangement.
The impact of the tariffs could be particularly significant for countries with close economic ties to the U.S. In recent years, South Korea has enhanced its economic cooperation with the U.S., driven partly by Washington's efforts to diversify global supply chains away from China.
Kim Tae-hyung, president of the Korean Association of International Studies, suggested that Trump's tariff policy exploits the economic dependence some countries have on the U.S. The administration's perception of being "ripped off" by both allies and adversaries has been a driving force behind the tariffs.
As the reciprocal tariffs loom, the U.S. Trade Representative's recent report on foreign trade barriers noted several issues with South Korea, including defense trade policies and regulations affecting imported products. These factors could further complicate trade negotiations between the two countries.