🚨 KOSPI Falls Below 2400 Points as US-China Trade War Reignites
Today Korean Economic News | 2025.04.08
📌 KOSPI Falls Below 2400 Points as US-China Trade War Reignites
💬 The US-China trade war has intensified after President Trump imposed an additional 34% tariff on Chinese products, which was met with retaliatory tariffs from China. As a result, the KOSPI index plunged more than 5%, breaking below the 2400 level. Foreign investors led the market decline, net selling more than 2 trillion won. Stock prices of major companies including Samsung Electronics and SK Hynix also fell sharply. Financial authorities plan to implement a market stabilization program worth approximately 100 trillion won.
1️⃣ Easy Understanding
The Korean stock market has fallen sharply as the trade war between the United States and China intensifies again. Let me explain how this situation developed and what impact it has.
A trade war refers to a competitive situation where two economic powers impose tariffs on each other's products. President Trump decided to impose an additional 34% tariff on Chinese products, citing the protection of the US economy and jobs. In response, China imposed retaliatory tariffs on American products, escalating the situation.
This bilateral trade conflict particularly impacts export-dependent countries like Korea. Since Korea exports significantly to both China and the United States, a US-China trade war inevitably reduces global trade volume, leading to decreased Korean exports and deteriorating corporate performance.
The KOSPI index, which represents the Korean stock market, fell more than 5% today, dropping below the 2400 level. In particular, major export companies like Samsung Electronics (-6.8%) and SK Hynix (-7.2%) saw their stock prices plummet. These companies are directly affected by the trade war as they export many products to both the US and Chinese markets.
Foreign investors led this market decline, selling more than 2 trillion won worth of Korean stocks in a single day. When uncertainty increases, foreign investors tend to withdraw their funds from emerging markets and flee to safe assets.
In response to this situation, financial authorities plan to implement a market stabilization program worth approximately 100 trillion won. This is expected to include various measures such as market stabilization fund support, facilitating share buybacks, and restricting short selling.
This KOSPI plunge demonstrates the direct impact of deteriorating global trade conditions on the Korean economy. It once again reveals the structural vulnerability of Korea's export-dependent economy. The progression of the US-China trade war and the Korean government's response measures will be closely watched going forward.
2️⃣ Economic Terms
📕 Trade War
A trade war is a competitive situation where countries seek economic advantage through imposing tariffs and trade restrictions.
- It typically begins with high tariffs on imported goods and escalates with retaliatory measures from the opposing country.
- It results in decreased trade volume between nations, global economic growth slowdown, and supply chain disruptions.
📕 KOSPI Index
KOSPI (Korea Composite Stock Price Index) is Korea's representative stock index that aggregates the market capitalization of all listed stocks on the Korea Exchange.
- It is calculated based on January 4, 1980 as the base (100) and serves as an important indicator of the domestic economic situation and investment sentiment.
- It responds sensitively to foreign investor trends, global economic issues, and corporate performance.
📕 Foreign Net Selling
Foreign net selling refers to a situation where foreign investors sell more than they buy during a certain period.
- Capital outflow by foreign investors tends to be prominent when global uncertainty expands.
- Because foreign investors hold a significant portion of the Korean stock market, their trading patterns greatly influence market direction.
📕 Market Stabilization Program
A market stabilization program is a policy package implemented by the government or financial authorities to stabilize the market during a sharp decline.
- It includes various measures such as injecting market stabilization funds, easing share buyback regulations, restricting short selling, and providing liquidity.
- While it has short-term market stabilization effects, a long-term approach is needed to solve fundamental economic problems.
3️⃣ Principles and Economic Outlook
💡 Background and Global Impact of US-China Trade War Reignition
Let's analyze the background of the intensified trade conflict between the United States and China and its impact on the global economy.
First, the strengthening of the Trump administration's protectionist policies is the key cause. President Trump decided to impose an additional 34% tariff on Chinese products to reduce the US trade deficit and revitalize manufacturing. This is higher than during his first term, expressing his intention to strengthen "America First" policies. Particularly, the US recorded a deficit of approximately $380 billion in trade with China in 2024, so there is a strong motivation to address this imbalance. There is also a strategic intention to counter China's rapid growth in advanced technology fields such as electric vehicles, batteries, and semiconductors. President Trump has already imposed tariffs on major trading partners including Korea, and these high tariffs on China can be seen as the culmination of his protectionist policies.
Second, the conflict has intensified due to China's immediate retaliatory measures. China declared it would impose retaliatory tariffs on US products immediately after the US tariff announcement. These measures targeting major US exports such as agricultural products, aircraft, and automobiles contain political calculations aimed at impacting vulnerable US industries and Trump's support base. China is also considering non-tariff barriers such as rare earth export restrictions and increased regulations on US companies, suggesting the conflict may spread beyond trade to various areas including technology and finance. In particular, President Xi Jinping expressed a firm stance, stating that "challenges to China's core interests will never be tolerated."
Third, global supply chain disruption and economic growth slowdown are expected. Trade conflict between the world's first and second largest economies creates disruption throughout global supply chains. Multinational companies with production bases and markets in both the US and China inevitably need to reconsider their production and investment plans, which dampens global investment sentiment. The IMF has warned that if the US-China trade war intensifies, global economic growth could decline by more than 0.5 percentage points. There is also a possibility of renewed global inflationary pressure. Price increases in imported goods due to tariffs lead to inflation, which could pose a new challenge to central banks pursuing monetary policy normalization.
Fourth, the blockization of global trade structures is expected to accelerate. The US-China trade war is accelerating the weakening of the free trade system and the reorganization of trade structures centered on regional blocks. The US is strengthening "friend-shoring" (supply chains centered on allied countries) through USMCA (United States-Mexico-Canada Agreement) and IPEF (Indo-Pacific Economic Framework), while China is expanding its sphere of influence through RCEP (Regional Comprehensive Economic Partnership) and the Belt and Road Initiative. This blockization reduces the efficiency of global trade and deepens the strategic dilemma for countries like Korea that maintain close economic relationships with both the US and China.
The reignition of the US-China trade war is not a temporary phenomenon but a manifestation of structural and long-term conflict. It represents the competition for global hegemony between the two countries becoming visible in the economic domain, with conflicts likely to continue in various areas such as advanced technology, exchange rates, finance, and the digital economy. This situation will increase global economic uncertainty and weaken growth momentum. Particularly for emerging economies deeply integrated into global supply chains, it will present both new challenges and opportunities.
💡 Impact and Outlook on Korean Stock Market and Economy
Let's examine the impact of the intensifying US-China trade war on the Korean stock market and economy, and the future outlook.
First, direct damage is inevitable due to Korea's export-dependent economic structure. Korea's exports account for approximately 40% of GDP, with China and the US being Korea's first and second largest export destinations. As the US-China trade war slows economic growth in both countries, Korean exports will inevitably decrease. According to the Bank of Korea's analysis, the intensification of US-China trade conflicts could reduce Korean exports by up to 4.5%, which would lower GDP growth by 0.6 percentage points. In particular, Korean exports to China are heavily weighted toward intermediate goods, so a reduction in China's exports to the US directly leads to a reduction in Korea's exports to China. In fact, during the first US-China trade war in 2018, Korea's exports to China decreased by more than 10%. This export reduction leads to deteriorating corporate performance, reduced investment, decreased employment, and overall negative economic impacts.
Second, core industries such as semiconductors and electric vehicles are expected to be significantly impacted. Semiconductors, Korea's main export item, are directly affected by US-China trade conflicts due to their complex global supply chain integration. In particular, memory semiconductor prices respond sensitively to global demand, and reduced demand for IT devices due to the trade war could lead to lower semiconductor prices and deteriorating corporate performance. The electric vehicle and battery sectors are also expected to be significantly affected. As US countermeasures against China strengthen, supply chain reorganization becomes inevitable, which can be both a threat and an opportunity for Korean companies. Meanwhile, material industries such as steel and petrochemicals are likely to face global demand contraction and downward price pressure. The performance deterioration in these key industries is a direct cause of stock price declines.
Third, financial market volatility will increase along with the risk of capital outflow. The intensification of the US-China trade war stimulates global risk aversion, accelerating capital outflow from emerging markets. This KOSPI plunge was also driven by large-scale net selling by foreign investors, a trend likely to continue for the time being. Particularly if concerns about the Chinese economy grow, financial market volatility in countries with high dependence on China, like Korea, could further increase. Additionally, increased global uncertainty creates downward pressure on the Korean won, which could lead to rising import prices and increased foreign currency debt burden. However, the prevailing assessment is that Korea has abundant foreign exchange reserves and a stable financial system, making the possibility of a foreign exchange crisis low.
Fourth, strategic positioning between the US and China emerges as an important task. The intensification of the US-China trade war increases pressure on Korea to make strategic choices. The structure of "security with the US, economy with China" is becoming increasingly difficult to maintain. Particularly as conflicts over advanced technology and supply chains intensify, Korean companies need strategic choices and risk management to maintain business in both markets simultaneously. At the government level, finding a diplomatic and economic balance point to maximize national interests between the US and China is emerging as an important task.
The reignition of the US-China trade war will be a major test for the Korean economy. The export-dependent economic structure and high economic dependence on both the US and China act as short-term vulnerabilities for the Korean economy, but if this opportunity is used to diversify export markets, revitalize the domestic economy, and advance the industrial structure, it could strengthen the economic constitution in the long term. Strategic and preemptive responses from the government and businesses are more important than ever.
💡 Response Strategies for Investors and Businesses
Let's explore response strategies that investors and businesses should consider amid the stock market plunge and global trade conflicts.
First, investors need portfolio diversification and a defensive approach. With market uncertainty likely to persist for the time being due to the reignition of the US-China trade war, investors should focus on risk management. It is advisable to reduce stock proportions while increasing the proportion of safe assets such as bonds and gold. Even when investing in stocks, attention to defensive sectors such as domestic-focused companies, consumer staples, and utilities may be valid, rather than companies with high export dependence. It's also necessary to selectively consider policy beneficiary sectors such as eco-friendly industries, renewable energy, and defense industries that are expected to grow despite US-China trade conflicts. Long-term investors might use this correction as an opportunity to buy quality stocks at low prices, but a phased buying strategy is advisable given the possibility of further declines. Particularly in periods of high global uncertainty, using diversified investment products like ETFs rather than individual stocks is also a good method.
Second, companies need to diversify supply chains and strengthen risk management. Korean companies need a strategic approach in preparation for the long-term US-China trade conflict. First, it's important to lower dependence on specific countries through supply chain diversification. There's a need to diversify production bases to countries like Vietnam, India, and Mexico, and to diversify raw material and component sourcing. Efforts to improve financial soundness through strengthened currency hedging strategies to prepare for increased exchange rate volatility, thorough liquidity management, and delaying unnecessary investments are also important. Meanwhile, the US-China trade conflict could also present new business opportunities. Korean companies may have expanded participation opportunities in the process of the US building supply chains that exclude China, and there are opportunities to expand market share from Chinese companies weakened by tariffs. This is an important time for Korean companies to gain recognition for their competitiveness, especially in advanced technology fields.
While the increased market uncertainty due to the reignition of the US-China trade war is a challenge for investors and companies in the short term, it can also be turned into an opportunity through risk management and strategic positioning. Investors should pursue diversified investments and a defensive approach, while companies should overcome this period of high uncertainty wisely through supply chain diversification and seeking new business opportunities.
4️⃣ In Conclusion
The direct cause of this situation, where the KOSPI index has plunged below the 2400 level, is the reignition of the trade war between the United States and China. Global economic uncertainty has greatly expanded due to President Trump's imposition of an additional 34% tariff on Chinese products and China's retaliatory tariffs in response.
This stock market plunge has once again confirmed the structural vulnerabilities of our economy. With high export dependence and particularly high economic dependence on the two powers of the US and China, the Korean economy is inevitably highly vulnerable to trade conflicts between the two countries. As shown by foreign investors' net selling of more than 2 trillion won, increased global uncertainty is a factor that promotes capital outflow from emerging markets like Korea.
In particular, Korea's main industries such as semiconductors, automobiles, and electric vehicle batteries are deeply integrated into global supply chains and are directly affected by US-China trade conflicts. The stock price declines of Samsung Electronics and SK Hynix by 6.8% and 7.2% respectively reflect these concerns in the market.
Financial authorities have announced plans to implement a market stabilization program worth approximately 100 trillion won. However, while such measures can help stabilize the market in the short term, market instability is likely to continue as long as the fundamental issue of US-China trade conflict remains unresolved.
This situation highlights both the structural challenges facing the Korean economy and the need for long-term strategies to respond to the changing global trade environment. Efforts to improve economic fundamentals through export market diversification, domestic economy revitalization, and industrial competitiveness strengthening are more important than ever. Strategic and preemptive responses from the government and businesses are needed in preparation for the long-term US-China trade conflict.