🚨 Korean Government's Response Strategy to US Reciprocal Tariff Announcement
Today Korean Economic News | 2025.03.25
📌 Korean Government's Response Strategy to US Reciprocal Tariff Announcement
💬 US President Donald Trump has announced plans to impose reciprocal tariffs on major countries starting next month on the 2nd. In response, the Korean government is preparing countermeasures based on worst-case scenarios and focusing on negotiation leverage with the US. In particular, efforts are being made to secure relative competitiveness against major competing countries such as the European Union (EU) and Japan. Additionally, the possibility of Korea-US-Japan joint participation in the Alaska gas development project is being discussed.
1️⃣ Easy Understanding
US President Donald Trump has announced plans to impose reciprocal tariffs on major countries next month, prompting the Korean government to prepare countermeasures. I'll explain what reciprocal tariffs are, how they impact the economy, and what strategies the Korean government is pursuing.
Reciprocal tariffs refer to imposing additional taxes on imported products to protect domestic products. President Trump has claimed that other countries are imposing unfair tariffs on the US and has announced he will impose "reciprocal" tariffs in response. Specifically, he plans to impose 60% tariffs on China and 10-20% tariffs on the EU, Japan, Korea, Canada, Mexico, and others starting next month on the 2nd.
If these reciprocal tariffs are actually implemented, they could significantly impact the Korean economy. The US is Korea's second-largest export market, and if additional tariffs are imposed on major export items such as automobiles, semiconductors, and steel, their price competitiveness could weaken, potentially reducing exports. Large companies like Hyundai-Kia Motors, Samsung Electronics, and POSCO could be directly affected, and the supply chain of small and medium-sized enterprises connected to them could also be impacted.
The Korean government is preparing multifaceted strategies in response. First, it is working to obtain exemptions or reductions through direct negotiations with the US. While emphasizing the importance of the Korea-US alliance and security cooperation, it is also actively highlighting the contributions of Korean companies to investment and job creation in the US.
At the same time, the government is seeking countermeasures in coordination with other major countries such as Japan and the EU. However, minimizing the relative tariff rate differences with these competing countries is also an important task. If higher tariffs are imposed on Korea, it could be disadvantaged compared to Japanese or EU products competing in the same market.
The government is also pursuing strategies to strengthen relations with the US by identifying new areas of cooperation. For example, discussions are underway for Korea, the US, and Japan to jointly participate in the Alaska gas development project. Through this, the government aims to strengthen energy security, expand economic cooperation, and secure a favorable position in tariff negotiations.
The Korean government is also preparing industry-specific impact analyses and support measures based on worst-case scenarios. Financial support for export companies, assistance in exploring alternative markets, and measures to strengthen domestic industrial competitiveness are being considered. Since the imposition of US reciprocal tariffs could bring significant changes to the global trade order, it is important for the government and businesses to cooperate closely and respond systematically.
2️⃣ Economic Terms
📕 Reciprocal Tariffs
Reciprocal tariffs are policies where one country imposes tariffs at a similar level in response to tariffs imposed by another country.
- Based on the principle of 'reciprocity,' if another country imposes high tariffs on one's products, one responds with corresponding tariffs.
- While aimed at protecting domestic industries and addressing trade imbalances, they can intensify global trade conflicts.
📕 Trade Deficit/Surplus
A trade deficit refers to a state where imports exceed exports, while a trade surplus refers to a state where exports exceed imports.
- The US has recorded a deficit in trade with Korea for a long time, which is one of the main arguments for imposing tariffs.
- Besides simple trade balance, multifaceted aspects of economic relationships including service trade, investment, and local production should be considered.
📕 Supply Chain Restructuring
Supply chain restructuring refers to the phenomenon of global production and supply networks changing due to geopolitical conflicts and strengthened protectionism.
- Global supply chains are being reorganized around security and resilience following the US-China conflict and COVID-19.
- Tariff impositions accelerate changes in companies' supply chain strategies, strengthening the phenomenon of 'friendshoring' (supply chains centered on allied countries).
📕 Economic Security
Economic security is a concept that considers national security and economic interests comprehensively, becoming a core foundation of recent trade and investment policies.
- It aims to enhance self-sufficiency in key industries and technologies and secure the stability of strategic resources and supply chains.
- US tariff policies are also being approached from an economic security perspective beyond simply addressing trade imbalances.
3️⃣ Principles and Economic Outlook
💡 Background and Prospects of US Reciprocal Tariff Imposition
The Trump administration's announcement of reciprocal tariffs goes beyond simple trade policy and has various economic and political backgrounds.
First, resolving the US's chronic trade deficit is one of the core economic policies of the Trump administration. As of 2024, the US records a goods trade deficit of about $800 billion, with China ($350 billion), the EU ($170 billion), Japan ($85 billion), and Korea ($32 billion) being the major deficit counterparts. President Trump has argued that this trade imbalance is a major cause of the decline in US manufacturing jobs and economic weakening. The 'Rust Belt' (Midwest industrial region), a traditional manufacturing stronghold, is Trump's major support base, and resolving the trade deficit is an important issue for voters in this region. The Trump administration has presented the goal of reducing the trade deficit by restraining imports and promoting domestic production through reciprocal tariffs.
Second, revitalizing US manufacturing and creating jobs are at the core of the tariff policy logic. Under the 'America First' principle, the Trump administration is actively promoting manufacturing reshoring (returning overseas production facilities to the US). Imposing tariffs has the effect of weakening the price competitiveness of foreign products and increasing incentives for domestic production. In fact, steel tariffs (Section 232) implemented during Trump's first administration (2017-2021) are evaluated to have contributed in part to increasing the operation rate and employment in the US steel industry. However, there are also side effects such as inflation, increased consumer burden, and weakened competitiveness of export industries. The announced 10-20% broad tariffs are expected to affect various sectors including automobiles, electronics, and consumer goods, which will directly impact jobs and investments in these industries in the US.
Third, tariff policy is being used as part of the US's competition strategy against China. The Trump administration has forewarned the highest level of tariffs, 60%, on China. This has strategic objectives beyond simply resolving trade imbalances, aiming to check China's economic rise and secure an advantage in the technological hegemony competition. In particular, the 'friendshoring' strategy is being strengthened to reduce dependence on China in advanced technology and key resource areas such as semiconductors, batteries, and rare earth elements, and to build a supply chain centered on allied countries. In this context, tariffs on allied countries such as Korea, Japan, and the EU have been set lower than those on China, but they can also be used as a means to pressure these countries to more actively participate in countering China through negotiations.
Fourth, the actual implementation level and scope of reciprocal tariffs are likely to change during the negotiation process. The Trump administration has declared a strong will to impose tariffs, but in the actual implementation process, there is a high possibility of differentiated approaches by individual countries and items. In particular, there is room for negotiating exceptions or reductions based on security alliance relationships, promises to expand investment in the US, and cooperation in countering China. During Trump's first term, there were cases of granting exceptions through negotiations with Canada, Mexico, etc., regarding steel and aluminum tariffs (Section 232). Therefore, major countries, including Korea, are expected to make efforts to minimize tariff burdens through intensive negotiations with the US until the 2nd of next month.
Overall, the Trump administration's announcement of reciprocal tariffs is a complex policy with various goals including protecting US manufacturing, creating jobs, resolving the trade deficit, and competing with China. This is an important issue that could bring significant changes to the global trade order, and governments and companies need to prepare systematic response strategies based on various scenarios.
💡 Analysis of Impact on Korean Economy and Industries
The US's imposition of reciprocal tariffs is expected to have various impacts on the Korean economy and major industries.
First, significant shock is expected for the overall Korean economy, which is highly dependent on exports. The US is Korea's second-largest export market after China, with exports to the US amounting to about $95 billion in 2024, accounting for about 15% of total exports. If 10-20% tariffs are imposed, weakened price competitiveness could reduce exports, negatively affecting economic growth and employment. According to the Korea Institute for Industrial Economics & Trade's analysis, if the US imposes a 10% tariff, Korea's exports to the US would decrease by about 7-12% and GDP would fall by 0.4-0.6 percentage points. Industries with high proportions of exports to the US, particularly automobiles, steel, home appliances, and semiconductors, are expected to be directly hit, and there are concerns about damage to small and medium-sized parts and materials companies linked to these industries.
Second, different impacts are expected by industry, with the automobile industry expected to be hit particularly hard. Automobiles account for the largest proportion (about 30%) of Korea's exports to the US, with Hyundai-Kia Motors holding about a 10% market share in the US market. A 10-20% tariff imposition could significantly weaken price competitiveness, leading to a decline in market share. However, Hyundai-Kia Motors operates local production plants in Georgia, Alabama, etc. in the US, so some models may escape the tariff impact. The steel industry is also a major item in exports to the US, and additional tariffs could be an even greater burden in a situation where Section 232 tariffs (25%) are already being imposed. In the case of the electronics industry, Samsung Electronics and LG Electronics have a high proportion of US production for major home appliances such as TVs and refrigerators, so the tariff impact may be relatively limited, but some items such as mobile phones are expected to be hit. Semiconductors, being more of an intermediate good than a final consumer good, may have limited direct tariff impact, but there are concerns about weakened price competitiveness for memory products, which account for a significant portion of semiconductor exports to the US.
Third, restructuring of companies' global supply chains and changes in investment strategies are expected to accelerate. There is a high possibility that Korean companies' direct investment and expansion of local production in the US will accelerate to avoid tariff burdens. Hyundai Motor Group is already building an electric vehicle plant in Georgia, and LG Energy Solution and Samsung SDI are establishing battery factories in the US. If tariff imposition intensifies, these localization strategies are expected to strengthen further. This could negatively impact production and employment in Korea, but in the long term, it could also be an opportunity to build a stable business foundation in the US market. In addition, efforts to strengthen competitiveness in other markets such as emerging countries, the EU, and Japan are expected to expand to offset the decrease in exports to the US.
Fourth, the importance of technological prowess and brand value beyond price competitiveness is expected to be further highlighted. Amid price increase pressures due to tariffs, companies need to strengthen non-price competitiveness through technological innovation and product differentiation. Especially in the premium market, where price elasticity is low, tariff impacts may be relatively limited, so transitioning to high value-added products and services could be an important strategy. Additionally, proactively meeting US requirements related to ESG (Environmental, Social, Governance), the Inflation Reduction Act (IRA), and eco-friendly, labor, and security standards will be important factors in maintaining competitiveness. Ultimately, companies'
It is clear that the US's imposition of reciprocal tariffs will be a significant challenge for the overall Korean economy and industries. In the short term, export decreases and increased business burdens are expected, but in the long term, it could also be an opportunity for supply chain restructuring and competitiveness enhancement. The government and businesses need to precisely analyze industry-specific impacts and prepare multilayered strategies that can flexibly respond to changing situations.
💡 Korean Government's Response Strategies and Future Tasks
The Korean government is formulating multifaceted strategies in response to the US's announcement of reciprocal tariffs.
First, securing tariff exemptions or reductions through direct negotiations between Korea and the US is the top priority. The Korean government has formed a US negotiation task force centered on the Presidential Office, the Ministry of Trade, Industry and Energy, and the Ministry of Foreign Affairs, and plans to conduct intensive negotiations with the US until April 2. The main negotiation arguments are expected to emphasize ① the strategic importance of the Korea-US alliance and strengthened security cooperation, ② the contribution of Korean companies to investment and job creation in the US, ③ Korea's role in countering China and supply chain security cooperation, and ④ the already open market relationship through the Korea-US FTA. In particular, there is a possibility that plans to concretize and expand recent US investment announcements by Korean companies (Hyundai Motor Group's EV plant, Samsung and SK's semiconductor investments, etc.) will be actively used in the negotiation process.
Second, strategies to strengthen relationships through the discovery of new areas of economic cooperation, such as Alaska gas field development, are being pursued. The Korean government is actively considering a plan for Korea, the US, and Japan to jointly participate in the Alaska LNG development project to strengthen energy security cooperation with the US. This project is a large-scale project of about $40 billion, which aligns with the Trump administration's policy direction of US energy independence and strengthening allied countries' energy security. In addition, there are plans to further strengthen supply chain cooperation in key industrial areas such as semiconductors, batteries, and rare earth elements, and to propose joint R&D and standard development in future industrial areas such as biotech, artificial intelligence, and space as cooperation agenda. This approach has the effect of elevating the bilateral relationship beyond simple tariff negotiations to an economic alliance and strengthening the foundation for long-term cooperation.
Third, a strategic approach is needed to prevent tariff rate differentiation with major competing countries such as Japan and the EU. Korean export products often compete directly with products from Japan, the EU, etc. in the US market. Therefore, if higher tariffs are imposed on Korea compared to these countries, there is concern about weakened relative competitiveness. The Korean government is focusing on this 'relative tariff gap' and is making efforts to receive tariff rates at least equal to those of the EU or Japan. Along with this, it is closely monitoring the trends of US-EU and US-Japan negotiations, and considering ways to strengthen negotiation leverage with the US through coordination with these countries if necessary. A parallel approach through the multilateral trading system such as the WTO is also being considered, but it seems appropriate to use this as a long-term response strategy.
Fourth, it is necessary to prepare industry-specific impact analyses and support measures for the worst-case scenario. While exemptions or reductions through negotiations are the primary goal, it is also necessary to prepare for the possibility that a certain level of tariffs may be imposed. For this, the government is conducting industry-specific and item-specific impact analyses and preparing customized support measures for heavily impacted industries. Specifically, ① expansion of export finance and insurance support, ② support for exploring alternative markets, ③ support for companies' localization investments in the US, and ④ support for technological innovation and productivity improvement to offset weakened price competitiveness are being considered. Special support measures for small and medium-sized enterprises playing important roles in the supply chain will also be necessary. Additionally, an export market diversification strategy to reduce dependence on the US market should be pursued in parallel.
The Korean government's response strategy should be approached within the broader framework of the long-term development of Korea-US economic relations and strengthening economic security amid global uncertainties, beyond short-term tariff negotiations. In particular, close cooperation between businesses and the government, flexible responses based on various scenarios, and strengthening cooperation in future growth engine areas will be key elements for a successful response.
4️⃣ In Conclusion
US President Trump's announcement of reciprocal tariffs is a significant challenge for the Korean economy and businesses, but it can also be an opportunity for economic structure advancement and future-oriented cooperation enhancement. The Korean government is focusing all efforts on negotiations for tariff exemptions or reductions, emphasizing the strategic importance of the Korea-US alliance, economic security cooperation, and Korean companies' contributions within the US. At the same time, it is attempting a multilayered approach by preparing industry-specific countermeasures for the worst-case scenario.
If US reciprocal tariffs are actually implemented, major Korean export industries, especially automobiles, steel, electronics, and semiconductors, are expected to be directly affected. This could lead to a decline in GDP growth rate, job losses, and a reduction in trade surplus, requiring a systematic response to economic shock. The automobile industry, accounting for about 30% of exports to the US, is a key sector, and weakened price competitiveness in the US market will have ripple effects not only on Hyundai-Kia Motors but also on numerous parts suppliers.
Meanwhile, this situation could accelerate Korean companies' supply chain diversification and business model innovation. Strategic changes such as expanding local production in the US, transitioning to high value-added products, and exploring emerging markets are expected. At the government level, policy support for export market diversification, industrial competitiveness enhancement, and trade structure advancement will be strengthened.
Discovering new cooperation areas such as the Alaska gas development project is also an important strategy. By expanding cooperation in areas where both countries can create common interests, such as energy security, advanced technology, and infrastructure, Korea can secure a favorable position in tariff negotiations and build a more solid economic relationship in the long term.
In conclusion, the US's announcement of reciprocal tariffs is a challenge arising amid changes in the global trade order and strengthening protectionism. While Korea strives to achieve the most favorable negotiation results based on its special relationship as an ally and economic interdependence, it should also build an economic structure and industrial competitiveness that won't be shaken by such uncertainties in the medium to long term. Above all, close cooperation between the government and businesses and strategic responses will be key elements in turning this crisis into an opportunity.