🚨 Analysis of Trump-Triggered Global Trade War and Its Impact on Korean Economy

Today Korean Economic News | 2025.03.13

📌 Signal Flare for Global Trade War... Trump Implements 25% Tariffs on Steel and Aluminum

💬 U.S. President Donald Trump has fired the opening shot in a trade war by imposing high 25% tariffs on steel and aluminum products. Major countries including Korea are included in the tariff targets, and as major trading partners such as the EU and China warn of retaliatory measures, global trade friction is expected to intensify. The measure aims to revitalize American manufacturing, but concerns are being raised that it could actually become a boomerang for the U.S. economy by slowing economic growth.

1️⃣ Easy to Understand

U.S. President Donald Trump has begun imposing high 25% tariffs on steel and aluminum products. Korea is included in these tariff targets, and other countries such as the EU and China are preparing retaliatory measures. I'll explain why this situation occurred and what impact it will have on us.

Tariffs are taxes imposed on products imported from foreign countries. With a 25% tariff, for example, a $100 steel product would need to pay an additional $25 in tax when entering the U.S., raising the price to $125. This makes domestically produced steel in the U.S. relatively more competitive.

Why did President Trump take such measures? He has campaigned on promises to revitalize domestic manufacturing, especially the steel industry, and increase jobs. According to his claims, the U.S. steel industry has been severely impacted by the flood of low-cost foreign steel in the U.S. market. He also argues that steel is a strategic industry connected to national security and therefore needs protection.

However, such measures can cause various problems. U.S. companies that import steel to make products will struggle with increased costs, and other countries are likely to impose retaliatory tariffs on U.S. products. The EU is already considering retaliatory tariffs on American whiskey, motorcycles, and jeans, while China is expected to impose tariffs on U.S. agricultural products and aircraft.

For Korea, the U.S. is an important export market. In particular, a significant portion of steel exports go to the U.S., so direct impact from these tariff measures is expected. The Korean government is considering requesting exemptions based on the Korea-U.S. FTA agreement or filing a complaint with the WTO.

Ultimately, this measure is an event that could bring major changes to the world economic order that has prospered through free trade until now. In the short term, steel exports will be hit, but what is more concerning is that this could be the beginning of a trade war. If tariff retaliation between countries expands, the entire world economy could be negatively affected, and the repercussions will eventually return to both consumers and businesses. As the uncertainty in the international trade environment increases, companies need to make greater efforts to diversify export markets and strengthen competitiveness.

2️⃣ Economic Terms

📕 Tariffs

Tariffs are taxes imposed on imported goods, used for domestic industry protection and trade balance adjustment.

• They can be imposed in various forms such as ad valorem tax (percentage of price), specific duty (based on quantity), and mixed duty (combination of both).
• Tariff increases directly result in higher import prices, reduced import volumes, and increased domestic production.

📕 Trade War

Trade war refers to an economic conflict state through strengthening tariffs and trade barriers between countries.

• It starts with unilateral tariff imposition and expands with retaliatory measures from counterpart countries, showing a vicious cycle pattern.
• In the modern era where global economic interdependence is high, it can have negative impacts on all countries.

📕 Retaliatory Tariffs

Retaliatory tariffs are imposed in response to the other country's tariffs, exacerbating trade disputes.

• They are strongly strategic in nature, targeting the other country's economic weaknesses or politically sensitive industries.
• They are allowed under WTO regulations under certain conditions and used as negotiation leverage for resolving trade disputes.

📕 Global Supply Chain

Global supply chain refers to an international network where product manufacturing and distribution take place across multiple countries.

• It has developed for cost efficiency, specialization, and risk diversification, and is a core structure of modern international trade.
• Tariff imposition due to trade wars can lead to supply chain reorganization and cost increases.

3️⃣ Principles and Economic Outlook

💡 Analysis of Trump's Tariff Policy Background and Intentions

• Donald Trump's imposition of tariffs on steel and aluminum stems from complex political and economic considerations beyond simple industry protection.

  • First, the most direct motivation is fulfilling 'America First' and manufacturing revival promises. President Trump has campaigned on the revival of American manufacturing and job creation as core promises since his election. The Rust Belt region, centered around the steel industry in the Midwest, is an important support base for Trump. This region has declined over decades due to overseas competition and industrial structural changes, and Trump promised manufacturing revival to voters in this region. Steel and aluminum are basic materials that form the foundation for various downstream industries such as automobiles, construction, and defense, and by protecting these, he is attempting to restore a wide range of manufacturing value chains.

  • Second, resolving trade deficits and correcting unfair trade practices are also important goals. The U.S. has recorded large trade deficits for a long time, and the Trump administration recognizes this as a major problem for the U.S. economy. In particular, the massive deficit with China (about $300 billion annually) is the primary target. The Trump administration points to China's state-owned enterprise subsidies, intellectual property infringement, and forced technology transfer as unfair trade practices, and uses tariffs as a means to respond to these practices. There is an underlying perception that other countries like Korea, the EU, and Japan are 'free-riding' and excessively exporting to the U.S. market.

  • Third, the justification of measures through national security logic is also noteworthy. The Trump administration imposed these tariffs based on Section 232 of the Trade Expansion Act of 1962, which provides a legal basis for taking measures against imports that threaten national security. Steel and aluminum are essential materials for the defense industry and national infrastructure, and the logic is that the U.S. must maintain the ability to be self-sufficient in these materials. This national security logic may potentially receive exceptional recognition within WTO regulations, making it a strategic approach to secure legal justification.

  • Fourth, it also has a strong character as a strategic card to strengthen negotiating power. As a former businessman, President Trump prioritizes securing negotiating advantage through a 'maximum pressure' strategy. The threat of strong tariff imposition is used as leverage to force concessions from counterpart countries. In fact, after previous tariff threats, he successfully renegotiated NAFTA (North American Free Trade Agreement) with Canada and Mexico, replacing it with the USMCA (United States-Mexico-Canada Agreement), and also revised the Korea-US FTA in a direction favorable to the U.S. This measure can also be seen as a strategic move to push through U.S. demands through individual negotiations with each country.

• Combining these backgrounds and intentions, Trump's tariff policy can be seen as pursuing multi-layered goals beyond simple protectionism, including restoring U.S. economic interests and global leadership, and securing domestic political support. However, how much positive effect this approach will actually bring to the U.S. economy, and what long-term impact it will have on the global trading system, remains uncertain.

💡 Global Trade Conflict Expansion Possibilities and Economic Impact

• Trump's steel and aluminum tariffs are likely to be the fuse for global trade conflict, with various economic ripple effects expected.

  • First, retaliatory tariff measures centered around the EU and China are expected to spread. The EU has already officially announced plans to impose tariffs on about $3.6 billion worth of U.S. products, including whiskey, motorcycles, jeans, and cosmetics. These strategically target products from politically sensitive regions. China is also expected to impose tariffs on U.S. soybeans, aircraft, and automobiles. Such retaliatory measures could lead to additional responses from the U.S., creating a high possibility of vicious cycle expansion. In particular, if the automobile tariffs (up to 25%) previewed by the Trump administration become reality, trade conflict will intensify further.

  • Second, disruption and reorganization of global supply chains are inevitable. Modern industries are based on highly integrated global supply chains. Steel and aluminum are key materials for various industries such as automotive, aviation, electronics, and construction, and tariff imposition on these leads to sequential cost increases. U.S. automakers are already concerned about billions of dollars in additional annual costs due to rising steel prices. In response, companies will seek strategic changes such as reconfiguring supply chains or relocating production bases. While this brings cost increases and confusion in the short term, it could lead to structural changes in trade flows and investment patterns in the long term.

  • Third, global economic growth slowdown and increased uncertainty are concerning. International organizations such as the IMF and World Bank warn that intensified trade conflicts could lower global economic growth rates by 0.5-1.0 percentage points. Tariffs basically raise trade barriers, reducing trade volume and lowering consumer welfare through price increases. More serious is the contraction of corporate investment due to increased uncertainty. When the trade environment becomes unstable, companies tend to delay or reduce long-term investments, which hinders productivity improvement and innovation.

  • Fourth, there is a risk of trade conflicts expanding into geopolitical conflicts. Economy and security are closely connected, and trade disputes often spread to diplomatic and security domains. Especially in U.S.-China relations, trade conflicts are likely to expand into technology hegemony competition, security conflicts, and ideological confrontation. Sanctions and checks in the high-tech field are already strengthening, which could negatively impact global technology development and cooperation. For countries like Korea that need to maintain balance between the U.S. and China, an even more difficult strategic environment is forming.

  • Fifth, weakening of global trade governance and strengthening of regionalism are expected. The multilateral trading system centered on the WTO is already in crisis, and the strengthening of unilateral measures by major countries will further weaken this. Instead, the trend of strengthening trade agreements through bilateral negotiations or regional blocks is expected to continue. This could lead to fragmentation of global trade rules, creating an unfavorable environment especially for small and medium-sized countries. Additionally, 'friendshoring', the reorganization of supply chains centered around geopolitical allies, is also likely to accelerate.

• Considering these multi-dimensional impacts, steel and aluminum tariffs are limited measures by themselves, but the global trade conflict they could trigger and its ripple effects could be very extensive and serious. In particular, with increased interdependence between national economies due to globalization and global value chain development, trade conflicts are likely to negatively impact all countries.

💡 Impact on Korean Economy and Businesses and Response Strategies

• Trump's steel and aluminum tariff imposition is expected to have a considerable impact on the export-dependent Korean economy, requiring strategic responses.

  • First, direct hits to the steel industry and accelerated restructuring are expected. Korea exports about $3.5 billion worth of steel to the U.S. annually, accounting for about 11% of Korean steel exports. With a 25% tariff imposition, price competitiveness will be significantly weakened, with export volume expected to decrease by 20-30%. Not only large steel companies like POSCO and Hyundai Steel but also small and medium-sized steel manufacturing and processing companies will be hit hard. This is expected to further accelerate the restructuring of the domestic steel industry, which is already struggling with excess capacity and profitability deterioration. Companies will need to strengthen efforts such as export market diversification, transition to high value-added products, and cost reduction.

  • Second, the possibility of tariff expansion to other industries increases uncertainty across the Korean economy. The Trump administration is already considering imposing tariffs on automobiles and auto parts. This could be a serious blow to Hyundai-Kia Motors and Korean parts suppliers. The U.S. is an important market accounting for about 1/3 of Korean automobile exports. Also, Korea's main export industries such as home appliances, semiconductors, and batteries may become targets of trade pressure. This uncertainty negatively impacts companies' investment plans and management strategies, potentially weakening the growth outlook for the overall Korean economy.

  • Third, intensified competition in third-country markets and changes in trade flows are expected. Steel products with reduced exports to the U.S. market may be diverted to other markets, worsening global oversupply. Especially if more Chinese steel products flow into the Asian market, Korean companies are likely to face fiercer competition in third-country markets as well. This could lead to price drops and profitability deterioration. Also, increased auto production costs in the U.S. could affect demand for Korean auto parts, potentially indirectly impacting the auto parts industry.

  • Fourth, diplomatic and trade strategy dilemmas require complex responses. Korea faces a strategic dilemma, heavily dependent on the U.S. for security and China for the economy. As U.S.-China trade conflicts intensify, Korea faces the difficult task of maintaining balance between the two countries while protecting national interests. In the short term, various countermeasures should be pursued in parallel, such as requesting exemptions based on the Korea-U.S. FTA agreement, negotiating steel quotas, and filing WTO complaints. In the long term, resilience to external shocks should be increased through export market and item diversification, strengthening the domestic market base, and industrial structure advancement.

  • Fifth, strategic adaptation and innovation are required at the corporate level. Korean companies need to explore various strategies to respond to changes in the trade environment. Expansion of local production in the U.S. (localization), global supply chain reconfiguration, competitiveness strengthening through technological innovation, and market entry barrier circumvention through M&A can be considered. Risk management systems for secondary impacts such as exchange rate fluctuations and raw material price increases should also be strengthened. For small and medium-sized enterprises, actively utilizing government export support programs and overseas market development through cooperation with large enterprises can also be important strategies.

• As such, Trump's tariff policy presents various challenges to the Korean economy and businesses. However, crises can also be opportunities. If this situation is used as an opportunity to complement structural vulnerabilities in the Korean economy and build a more innovative and resilient industrial ecosystem, it could be a turning point to further strengthen global competitiveness in the long term.

4️⃣ In Conclusion

U.S. President Donald Trump's imposition of 25% tariffs on steel and aluminum is an event that could bring significant changes to the global trade order beyond simple trade policy. This measure, advocating 'America First' and manufacturing revival, is becoming the opening shot of a trade war, eliciting retaliatory measures from major countries such as the EU and China.

Behind these tariff impositions lie various complex intentions including U.S. manufacturing revival, trade deficit resolution, national security strengthening, and negotiating power enhancement. However, such protectionist measures are likely to have several negative impacts on the global economy. Major concerns include trade conflict escalation, global supply chain disruption, economic growth slowdown, and increased uncertainty.

The Korean economy is expected to take a direct hit from this measure. It will face various challenges such as decreased steel exports, increased uncertainty due to possible tariff expansion, and intensified competition in third-country markets. The Korean government is exploring countermeasures such as requesting exemptions based on the Korea-U.S. FTA agreement or filing WTO complaints.

At the corporate level, various response strategies are needed, including export market diversification, expansion of local production in the U.S., transition to high value-added products, and global supply chain reconfiguration. Industries directly affected, such as steel and automobiles, need to prepare measures for long-term competitiveness enhancement along with short-term shock management.

In conclusion, the Trump-triggered trade war poses a significant challenge to the global economic order that has developed based on globalization and free trade. The spread of protectionism may protect certain industries in the short term, but in the long term, it is likely to reduce the economic welfare of all countries. Countries with high trade dependence like Korea should respond agilely to these changes while taking them as opportunities to strengthen their economic constitution.