🚨 Trump's Second Term Brings Back 'Steel Tariffs'
Today Korean Economic News | 2025.02.11
📌 Trump's Second Term Brings Back 'Steel Tariffs'... During First Term, Quota Agreement After 2-Month Grace Period
💬 President Trump has once again announced plans to impose a 25% tariff on steel and aluminum, potentially affecting major steel exporting countries including South Korea. While there is a possibility of exemption through quota system negotiations as during his first administration, concerns are raised that response may be delayed due to the absence of summit diplomacy between South Korea and the US.
1️⃣ Easy to Understand
President Trump has once again announced he will impose a 25% tariff on steel and aluminum. I'll explain how this will affect our economy and businesses, and how we might respond based on past experiences.
Tariffs are a kind of tax imposed on products coming in from foreign countries. A 25% tariff means that when Korean steel worth $100 enters the United States, an additional $25 in tax must be paid. This reduces the price competitiveness of Korean steel in the US market.
South Korea is one of the countries that exports a significant amount of steel to the United States. Korean steel companies like Hyundai Steel and POSCO export substantial quantities of products to the US, so if this decision is implemented as is, damage will be inevitable. The steel industry is connected to other industries such as automobiles, construction, and shipbuilding, so the ripple effects could be significant.
Fortunately, we have past experience to draw from. A similar situation occurred in 2018, during President Trump's first term. At that time, the US announced it would impose a 25% tariff on steel and 10% on aluminum, citing national security reasons. However, Korea was able to reach an agreement to switch from tariffs to a 'quota system' after two months of active trade negotiations.
A quota system is a method that allows normal exports up to a certain quantity but restricts amounts beyond that. At that time, Korea was able to export up to 70% of its average export volume from 2015-2017 without tariffs. While not a completely satisfactory result, it was considered a relatively good negotiation as it completely avoided the 25% tariff.
Is a similar negotiation possible this time? There is a possibility, but there are also differences from the past. The current Korea-US relationship has become somewhat more complex than during the first term, and in particular, a direct communication channel between the leaders has not yet been established. Additionally, the Trump administration in its second term is showing a strengthened protectionist stance, which may increase the difficulty of negotiations.
2️⃣ Economic Terms
📕 Tariff
Tariffs are taxes imposed on imported goods, used for protecting domestic industries and adjusting trade balance.
- Tariffs have the effect of increasing the price of imported products, relatively enhancing the price competitiveness of domestic products.
- Tariffs can be imposed in various forms such as ad valorem (a certain percentage of the price), specific (a fixed amount per unit of quantity), and mixed tariffs.
📕 Quota System
Quota system is a trade policy that limits the import volume of specific items, allowing exports only within limits set by the importing country.
- Import quotas can have a more immediate price-increasing effect than tariffs as they restrict the quantity itself.
- Quota systems are more direct trade restriction measures than tariffs, and are principally prohibited under WTO regulations, though exceptions for reasons such as national security are recognized.
📕 Trade Sanctions
Trade sanctions are policy instruments that restrict trade between countries, taking various forms such as tariffs, quotas, and import bans.
- Trade sanctions are utilized for various purposes including economic reasons, diplomacy, security, and human rights.
- Depending on the degree and scope of sanctions, they can have widespread effects on the target country's economy and global supply chains.
📕 Trade Negotiations
Trade negotiations refer to the process of dialogue and consultation to establish trade conditions and rules between countries.
- Various forms of trade negotiations exist, such as free trade agreements (FTAs), tariff negotiations, and trade dispute resolutions.
- Effective trade negotiations require comprehensive strategies including diplomatic capabilities, industrial impact analysis, and legal response preparation.
3️⃣ Principles and Economic Outlook
💡 Intentions and Background of Trump Administration's Steel Tariff Policy
President Trump's steel and aluminum tariff policy is a result of the combination of the 'America First' stance and the political and economic goals of revitalizing manufacturing.
First, the Trump administration cites national security as the justification for imposing tariffs. The US claims, based on Section 232 of the Trade Expansion Act of 1962, that steel and aluminum are essential strategic materials for national security, and therefore the domestic production base must be protected. This is also a strategy to legally utilize exception clauses in WTO regulations. In fact, the US steel industry has seen its competitiveness weakened due to increased global production, including from China, since the 2000s, leading to job losses and factory closures.
Second, protectionist policies are also a political message aimed at workers in the Rust Belt region, which forms Trump's core support base. The traditional manufacturing regions in the Midwest, such as Pennsylvania, Ohio, and Michigan, are important support bases for Trump. These regions have lost jobs and economic vitality due to globalization, and Trump gained support with promises to protect them. This tariff policy is an expression of his will to keep that promise even after re-election.
Third, the Trump administration in its second term is showing a stronger protectionist stance than in its first term. President Trump publicly pledged during his campaign to impose a 10% tariff on all imports and over 60% on Chinese products, and quickly signed an executive order to reintroduce steel and aluminum tariffs after taking office. This is interpreted as a signal of a strengthened protectionist policy.
Fourth, tariff policies are also used as negotiation cards with trading partners. The Trump administration often uses the threat of high tariffs to extract concessions from trading partners. Examples of this strategy include the 2018 quota agreement with Korea and the USMCA negotiations with Mexico and Canada. This time too, the tariff announcement may be a move to secure an advantageous position in future trade negotiations with individual countries.
Considering this background, the Trump administration's steel tariff policy needs to be understood as a multi-layered strategy where US domestic politics, industrial policy, and international relations interact in complex ways beyond simple trade measures. South Korea and other trading partners need to prepare response strategies taking this context into account.
💡 Impact on the Korean Economy and Steel Industry
The impact of the Trump administration's steel tariff policy on the Korean economy and steel industry needs to be analyzed in multiple dimensions.
First, direct export reduction and weakened price competitiveness are concerns. As of 2024, Korea is a major trading partner exporting about 3 million tons of steel products to the United States. If a 25% tariff is imposed, export reduction due to weakened price competitiveness is inevitable. In particular, companies with high US export ratios such as Hyundai Steel, POSCO, and Dongkuk Steel are expected to see deteriorating performance. According to estimates from the Korea International Trade Association, the effect of a 25% tariff on Korean steel exports could amount to a reduction of about $1 billion annually.
Second, structural changes in the global steel market could occur. As steel from various countries that was headed for the US market changes direction to other markets, global oversupply could intensify. This means that competition may intensify and price pressure may increase in other markets where Korea exports. Particularly if steel from China, the largest producer, concentrates on the Asian market, Korean companies could face greater competition even in the domestic market.
Third, sequential impacts on downstream industries related to steel are expected. Steel is a core raw material for various industries including automobiles, shipbuilding, home appliances, and construction. These industries may also be directly and indirectly affected by the strengthening of US protectionism. For example, issues regarding the origin of steel used in Korean automobiles or home appliances could be raised, and in the worst case, additional tariffs or complicated administrative procedures in the export process could occur.
Fourth, constraints remain in the mid to long term even if switched to a quota system. Even if an agreement is reached to switch from tariffs to a quota system, as in the 2018 experience, export volume itself will be limited, creating barriers to growth. Particularly, even in situations where demand in the US market increases, exports cannot exceed the allocated quota, causing missed opportunities for market expansion. Competition among domestic companies over how to distribute the quota volume could also intensify.
Fifth, there are also concerns about investment contraction and deteriorating business environment due to increased uncertainty. Uncertainty in trade policy negatively affects companies' investment decisions and business plans. In particular, it becomes difficult to establish long-term export strategies and facility investment plans, potentially delaying efforts to strengthen the competitiveness of the steel industry.
Considering these various impacts, steel tariffs are not simply an issue limited to a specific industry, but an important challenge factor affecting the overall Korean economy. Especially for Korea, which has an export-driven economic structure centered on manufacturing, the spread of protectionism can act as a significant risk, requiring systematic responses at both government and corporate levels.
💡 Korea's Response Strategies and Outlook
Korea needs to seek multi-layered and comprehensive strategies to respond to the US steel tariff policy.
First, diplomatic and trade responses should be strengthened. The top priority is to lead to tariff exemptions or conversion to a quota system through negotiations between Korea and the US, as in the first term. For this, the government needs to utilize various diplomatic channels. Especially in the absence of summit diplomacy, the role of working-level negotiation teams is important, and it is necessary to secure various contact points such as the US Congress, Commerce Department, and US Trade Representative (USTR). Forming multilateral pressure through coordination with other affected countries such as the EU and Japan can also be considered.
Second, legal and institutional countermeasures should be pursued in parallel. Responses utilizing multilateral trade norms, such as WTO complaints, are also needed. Although the WTO dispute resolution mechanism has been weakened, an approach based on international norms can help increase negotiating power. Also important is the development of logic and data to prove that the US Section 232 measures are for industrial protection purposes rather than 'national security'.
Third, structural responses at the industry level are needed. Steel companies need to strengthen export diversification strategies to reduce dependence on the US market. It is important to spread risk through developing emerging markets such as India, ASEAN, and the Middle East, and to increase the proportion of high value-added products to compete with technology and quality beyond price competitiveness. Consideration can also be given to bypassing tariff and quota restrictions by expanding local production within the US.
Fourth, customized response strategies are needed for each company. Companies need to establish differentiated strategies according to their export ratio, product portfolio, and presence of local production. Some companies can seek ways to expand investment in the US or secure stable volumes through long-term contracts with US buyers. Efforts are also needed to strengthen risk management systems in preparation for supply chain reorganization and to maintain competitiveness through cost reduction and productivity improvement.
Fifth, industry quality improvement and innovation are important in the mid to long term. Differentiated competitiveness should be secured through technological innovation such as eco-friendly steel production and development of high-functional special steel. In particular, green steel technology development in line with the carbon neutrality trend will be key to future competitiveness. Digital transformation should also be pursued to enhance production efficiency and discover new business models.
Based on these comprehensive response strategies, Korea should take this not only as an opportunity for short-term crisis management but also for enhancing mid to long-term industrial competitiveness. It is particularly important to build crisis response capabilities and rapid adaptation abilities in a situation where uncertainty in the trade environment is becoming routine. Although the situation is challenging at the moment, effective responses are expected to be possible based on past experiences of successfully overcoming similar crises.
4️⃣ In Conclusion
President Trump's plan to impose tariffs on steel and aluminum reflects US domestic political purposes and a strengthened protectionist stance. While this poses a direct challenge to the export-oriented Korean economy, especially the steel industry, there is also a possibility of minimizing the impact through past experience and strategic responses.
In the short term, prompt trade negotiations at the government level are most important. During President Trump's first term in 2018, after about two months of negotiations, an agreement was reached to convert from a 25% tariff to a quota system. A similar approach is needed this time as well, and all-round contact at the working level is particularly important in the absence of summit diplomatic channels. Relevant departments such as the Embassy in the US, the Office of Trade Negotiations, and the Ministry of Industry should cooperate organically to engage in negotiations with their US counterparts.
At the corporate level, risk management in preparation for uncertainty is essential. Companies need to prepare response plans according to various possibilities such as tariff imposition and quota system conversion scenarios, and increase the flexibility of supply chains and sales strategies. Also, companies with high dependence on the US market need to make efforts to spread risks through export diversification and product high value-addition.
In the mid to long term, this situation should be taken as an opportunity to improve the quality and enhance the competitiveness of Korea's steel industry. Through technological innovation, eco-friendly production, and digital transformation, companies need to secure a differentiated position in the global market and build essential competitiveness that can overcome protectionist barriers.
Also, this case suggests the possibility that US protectionist policies might not be limited to steel and aluminum but could expand to other core industries such as automobiles and semiconductors. Therefore, there is a need to strengthen trade strategies and risk management systems at the national level beyond individual industries.
In conclusion, the steel tariff policy of the Trump administration in its second term is a significant challenge for the Korean economy, but considering past experiences, strategic responses, and the importance of Korea-US relations, the possibility of resolution through negotiations remains open. If the government and businesses cooperate organically to deploy proactive and multi-layered response strategies, this crisis can be minimized and even transformed into an opportunity to strengthen industrial competitiveness. Above all, in a global trade environment where uncertainty has become routine, it is an important time to focus on long-term industry quality improvement and competitiveness enhancement beyond short-term crisis response.