Last year, Korea's exports to the U.S. reached $130 billion but are now shrouded in uncertainty. U.S. President Donald Trump officially announced on the 2nd (local time) that a mutual tariff of 25% (base tariff of 10% + mutual tariff of 15%) will be imposed on Korea, raising concerns that the competitiveness of major exports such as general machinery, computers, and petroleum products could decline. The Korean economy, which relies on exports, is in crisis.
Trump stated earlier that he would not apply overlapping tariffs on steel, aluminum, and automobiles, for which he announced a 25% tariff. Although he indicated that tariffs would be imposed, he has not yet announced the tariff rates for copper, pharmaceuticals, lumber, semiconductors, minerals, and other excluded items.
Aside from semiconductors and pharmaceuticals, for which the exact tariff rates have not yet been announced, most goods exported from Korea to the U.S. are expected to incur a 25% tariff. The base tariff (10%) will take effect from the 5th, and the country-specific mutual tariff (+15%) will come into effect from the 9th.
The tariff rate of 25% announced by Trump is an unprecedented rate under the free trade order represented by the World Trade Organization (WTO). The tariff will be a factor driving up local import prices. A 25% tariff means that if a product priced at 10,000 won is exported from Korea, an additional 2,500 won will be required as a tariff upon customs clearance.
In particular, the mutual tariff rates for Japan and the European Union (EU), both competitive nations in the automobile industry, are 24% and 20%, respectively, which are lower than Korea's rate. This means that Korean-produced cars may lose price competitiveness in the U.S. market compared to Japanese and EU cars.
◇ Automobiles, the top export item to the U.S., have avoided the worst but still face significant impact
The automobile, which is the number one export item to the U.S., has avoided the worst by steering clear of overlapping tariffs, but concerns remain. Beginning at midnight on the 3rd (local time), the U.S. will impose a 25% tariff on completed cars and major components. The U.S. has applied a zero tariff on Korean cars since 2016.
Previously, President Trump noted during a recent investment announcement by Chung Eui-sun, chairman of Hyundai Motor Group, on the 24th of last month at the White House that 'Hyundai does not need to pay tariffs,' but this applies only to vehicles produced in the U.S.
Hyundai Motor and Kia will inevitably face impacts in the U.S., their largest export market, due to the tariff policy of the Trump administration. Last year, Hyundai and Kia sold a total of 1.84 million vehicles in the U.S. (wholesale basis), with 1.02 million produced in Korea and 150,000 produced in Mexico.
GM Korea, which exports more than 400,000 vehicles to the U.S., is also in crisis. GM has built production plants in countries with inexpensive labor among those that have signed free trade agreements with the U.S., but now is forced to completely overhaul its production strategy.
The steel industry, which had already anticipated a 25% tariff, is somewhat relieved that overlapping mutual tariffs will not be applied. This is because U.S. domestic steel supply is unable to keep up with demand, and some items are not produced at all in the U.S., leaving export avenues still open. The steel industry plans to respond nimbly to market conditions in collaboration with the government and diversify export strategies by item to overcome the crisis.
Some see a positive aspect in the fact that a 25% tariff is imposed on all countries, signaling the abolition of the existing quota system. The government negotiated with the Trump administration during its first term to avoid the steel tariff (25%) by securing a duty-free quota (2.63 million tons) and exempt items from the quota. However, during that time, annual steel exports to the U.S. fell by 24.2% compared to the previous year, recording 2.5 million tons.
Park Seong-bong, a researcher at the Industrial Bank of Korea, said, 'While there are concerns about a decrease in steel exports to the U.S., the elimination of the quota system, which removes limitations on export volumes, is a positive aspect.' He added, 'While immediate concerns about a decline in exports are present, it could also be seen positively that the increase in steel prices in the U.S. may raise export prices.'
◇ Tariff rate 'undecided' on semiconductors… 'Exporting countries are few, so the impact may be limited'
The previously announced mutual tariffs exclude semiconductors, the third-largest export item to the U.S. President Trump had stated in February that a product-specific tariff of at least 25% would be imposed on foreign semiconductors, but a definitive figure has not yet been provided.
The semiconductor industry raises the possibility that imposing tariffs on semiconductors will not yield substantial benefits for the U.S. With the rapid increase in semiconductor demand due to advancements in artificial intelligence (AI) and the fact that the U.S. has secured technological competitiveness in the international community based on this, there is no reason to impose high tariffs on semiconductors that could hinder technological advancement.
Ahn Gi-hyun, executive director of the Semiconductor Industry Association, said, 'The only countries exporting semiconductors to the U.S. are Taiwan, Korea, and Malaysia, where many U.S. corporations are present.' He added, 'Currently, there are hardly any factories capable of producing semiconductors in the U.S., so if tariffs are imposed, it may actually harm U.S. corporations.' He then noted, 'There is a possibility that the imposition of tariffs could be postponed until semiconductor factories are completed in the U.S.'
When comparing the period before and after the Korea-U.S. Free Trade Agreement (FTA), there was no significant change in the export volume of semiconductors due to tariffs. Jang Han-ik, a researcher at the Industrial Bank of Korea, also stated, 'The semiconductor exports to the U.S. were not significantly affected by the FTA, and I believe that even if industry-specific tariffs are imposed on semiconductors, it will not have a significant impact on exports.'
The government plans to actively pursue high-level and practical consultations with the U.S. to minimize damage to Korean corporations. A government official said, 'We will quickly prepare an analysis of the specific impact by sector due to the Trump administration's imposition of tariffs, along with emergency support measures.'