Seoul: The United States' trade policy is projected to reduce South Korea's economic growth rate by 0.45 percentage points in 2025, as stated by the central bank on Thursday. After extended negotiations, Seoul and Washington reached a significant agreement in late July, where the U.S. agreed to impose a 15 percent tariff on South Korea, a reduction from the initially planned 25 percent, in return for a commitment of a US$350 billion investment in the U.S.
According to Yonhap News Agency, the Bank of Korea (BOK) in its latest biannual monetary policy report noted that the impact of the U.S. tariff policies was limited in the first half of the year, supported by U.S. companies' inventory accumulation, pre-exports by other countries, and shared burdens by businesses. However, the effects are expected to become more noticeable in the future.
The report further explained that, compared with a scenario without tariff increases, the policy implemented during the Donald Trump administration is estimated to lower South Korea's growth rate by 0.45 percentage points in 2025 and 0.6 percentage points in 2026. This reduction is attributed to weakened trade, financial challenges, and increased uncertainties.
The aggressive tariff policy is expected to impact the Korean economy through three channels: trade, finance, and uncertainty. These channels are anticipated to reduce this year's economic growth by 0.23 percentage points, 0.09 percentage points, and 0.13 percentage points, respectively.
Rising export costs and reduced demand due to higher prices in the U.S. are likely to lead to a decline in exports to the U.S., with the steel, vehicles, and machinery sectors expected to be particularly affected. From a financial perspective, U.S. tariffs could heighten inflationary pressures, prompting tighter monetary policy in the U.S., which may delay improvements in both domestic and international financial conditions, thereby negatively influencing the real economy.
The report also indicated that uncertainties arising from the tariff policy could diminish investment and consumption.