U.S. President Donald Trump has announced a 25% tariff on steel and automobiles and is imposing reciprocal tariffs that will disrupt the global trade order on the 2nd of next month, while our government is also focusing on negotiations with the U.S. The government aims to apply a lower tariff rate compared to competitor countries to secure a 'relative' advantage in the U.S. market.
According to the Ministry of Trade, Industry and Energy and others on the 30th, the government is preparing measures with the goal of applying a relatively low reciprocal tariff. However, since the final decision rests with President Trump, the outcome cannot be guaranteed.
◇ Government says "reciprocal tariff exemption is impossible… Let's try to lower the tariff rate as much as possible"
Initially, the government aimed to apply for a 'reciprocal tariff exemption' since our country is an exceptional nation with no tariffs on almost all items due to the free trade agreement (FTA) signed with the U.S. However, the U.S. has indicated that it will impose corresponding reciprocal tariffs on various countries considering non-tariff barriers, tax environments, exchange rates, and policies.
As complaints about trade balance inequalities in Korea have surfaced, there are interpretations that issues regarding the elimination of specific non-tariff barriers, such as agricultural products and digital regulations, have also emerged to justify the imposition of reciprocal tariffs. The fact that President Trump appears to be eyeing tariffs as a means to alleviate fiscal deficits and secure 'alternative revenue sources' lends credence to the expectation that the Trump administration will not merely use reciprocal tariffs as bargaining chips.
Jamison Grier, the U.S. Trade Representative (USTR), noted in a public lecture on the 19th that the upcoming American sentiment must be prepared for, stating, "We must be prepared for the shocks to come." He predicted that the Group of Twenty (G20) countries, including Korea, would find it difficult to avoid reciprocal tariffs and warned, "Thinking that 'the U.S. will just let it slide' is a big mistake."
If reciprocal tariff exemptions are difficult, the government plans to focus on lowering the applicable tariff rates to secure a relatively advantageous position compared to major competitor countries like the European Union (EU) and Japan throughout the negotiations with the U.S.
The government has been making efforts to receive the maximum 'favorable treatment' through a series of visits to the U.S. by high-ranking officials, including Minister of Trade, Industry and Energy Ahn Duk-geun and Deputy Minister Jeong In-kyo. An official from the Ministry of Trade, Industry and Energy recently told reporters, "We are focusing our negotiation power on securing favorable treatment regarding reciprocal tariffs" and explained, "How much our major competitors are aligned on reciprocal tariffs is important in terms of competition in the U.S."
President Trump previously announced a 25% tariff on imported automobiles. Under these circumstances, if a 10% reciprocal tariff is applied to Korea and a 20% reciprocal tariff to the EU, the total tariff on Korean cars would be 35% and 45% for European cars. This would make Korean cars at a price disadvantage compared to U.S. cars in the U.S. market, but at least they could have relative price competitiveness compared to European cars. The government is aiming for this.
◇ "Korea, fortunately outside the spotlight"… U.S. may allow room for negotiation with individual countries after April 2
From Korea's perspective, it is expected that President Trump's focus is primarily on the European Union (EU), Canada, and Mexico. Allies in East Asia, such as Korea and Japan, have been relatively 'unmentioned.'
President Trump displayed a particularly hostile attitude towards the EU, saying, "The EU was born to exploit the U.S." Maros Sefcovic, a European Commission (EU) executive responsible for trade and economic security, recently predicted that the U.S. would impose a 20% reciprocal tariff on all EU countries.
Internally, there is optimism that there is a possibility of receiving a relatively low tariff rate, as the misunderstandings from the U.S., such as the 'fourfold tariff rate' mentioned by President Trump, have been largely clarified, and the negotiation process has leveraged cooperative factors that can increase Korea's value, such as shipbuilding and gas.
However, even if each country receives its 'reciprocal tariff report card' on April 2, this is only the beginning, and a marathon-style long negotiation phase is expected afterward. It has been pointed out that the outcome of negotiations with the Trump administration regarding reciprocal tariffs and the reduction or exemption of item-specific tariffs will depend on how well the U.S. interests, including solutions to trade imbalance, can be satisfied.
Many see the rebuilding of the shipbuilding industry, which the U.S. is betting on amid a new cold war with China, expanded energy purchases including participation in Alaska LNG development, and energy industry cooperation such as small modular reactors (SMR) as potential leverage for Korea in negotiations with the U.S. Recently, Hyundai Motor Group announced an investment plan worth $21 billion (approximately 31 trillion won) during President Trump's hospitality, and Korean Air also revealed a plan to purchase U.S. passenger planes and engines worth $32.7 billion (approximately 48 trillion won), indicating that large-scale U.S. investments by Korean corporations and purchases at the level of 'Buy America' will significantly contribute to enhancing Korea's negotiation power with the U.S.
Deputy Minister Jeong In-kyo stated, "The U.S. is likely to impose reciprocal tariffs by country on April 2 and then negotiate with individual countries, so the tariffs on April 2 will not be final," adding, "There is room for adjustment. The tariff rates could vary depending on what package we prepare."