🚨 Impact of US Protectionist Trade Policies on Korean Industries and Strategic Response
Today Korean Economic News | 2025.04.10
📌 How Will US America First Trade Policies Affect Domestic Export Industries?
💬 NICE Credit Rating has forecast that America's "America First" trade policies will increase volatility for Korean export industries. The automotive sector in particular is expected to be directly affected by these tariff policies, with companies likely to face increased financial burden. With the reignition of the US-China trade war alongside high tariffs imposed on Korea, major domestic industries are facing multiple simultaneous challenges.
1️⃣ Easy Understanding
As US protectionist policies strengthen, Korea's core industries are being challenged simultaneously. Let me explain how this situation is affecting our economy in simple terms.
President Trump has imposed a 25% tariff on Korean products under his "America First" policy. This is even higher than what has been imposed on Japan (24%) and the European Union (20%). Korea's core export items such as automobiles, semiconductors, and steel are taking direct hits.
Along with US tariff policies, the US-China trade war has intensified again. President Trump imposed additional 34% tariffs on Chinese products, and China responded with retaliatory tariffs, worsening the global trade environment. This has significantly shaken the Korean stock market, with the KOSPI falling below the 2400 threshold.
In addition, international oil prices have hit a four-year low, creating a crisis for the refining industry. Despite falling crude oil prices, refining margins have dropped below the break-even point, severely damaging profitability. This is the combined result of China's economic slowdown, global oversupply, and the expansion of electric vehicles.
In response to these conditions, the government is seeking to overcome the crisis through a supplementary budget of approximately 15 trillion won. While this focuses on supporting export companies, stabilizing employment, and stimulating domestic demand, there are limitations to short-term responses alone.
For the Korean economy to overcome this crisis, it needs fundamental structural improvements including enhanced industrial competitiveness, export market diversification, and strengthening of the domestic economic base. Particularly important at this juncture are strategic positioning between the US and China, and long-term strategies to respond to global supply chain reorganization.
2️⃣ Economic Terms
📕 Protectionism
Protectionism refers to policies that protect domestic industries by imposing tariffs or non-tariff barriers on imported goods.
- It appears in various forms including tariff impositions, import quotas, and technical regulations.
- While it may protect domestic industries in the short term, it can lead to decreased global trade and economic growth slowdown in the long term.
📕 Refining Margin
Refining margin is the difference between crude oil purchase price and petroleum product sales price, a key indicator of oil refinery profitability.
- The 'Singapore complex refining margin' is primarily used as a benchmark in the Asian region.
- Generally, $4-5 per barrel is considered the break-even point; profitability deteriorates if margins fall below this level.
📕 Trade War
A trade war is a competitive situation where countries seek economic advantage through tariffs and trade restrictions.
- It typically begins with high tariffs on imported goods and escalates with retaliatory measures from the other country.
- It results in decreased trade volume between countries, global economic growth slowdown, and supply chain disruption.
📕 Supplementary Budget
A supplementary budget is an additional budget formulated beyond the already established budget.
- It is formulated during economic crises, natural disasters, or urgent fiscal needs, and is finalized through parliamentary deliberation and resolution.
- It serves as a tool for expansionary fiscal policy during economic downturns to stimulate economic activity.
3️⃣ Principles and Economic Outlook
💡 Intensification of US Protectionist Policies and Global Impact
Let's analyze the background of strengthening US protectionist policies and their impact on the global economy.
First, the core of 'America First' is high tariff imposition. President Trump is imposing discriminatory tariffs on major trading partners, using trade deficit reduction and domestic manufacturing revival as justification. He's applying 25% tariffs to Korea, 24% to Japan, and 20% to the EU, creating differentiated pressure even among allies. In particular, he imposed a high 34% tariff on China, reigniting the trade war. These tariff policies can be seen as part of global economic order reorganization and geopolitical competition, beyond simple trade measures. The US is using economic means to gain an advantage over China in strategic areas such as advanced technology, energy, and security.
Second, the reignition of the US-China trade war is creating chaos in global supply chains. Conflict between the world's two largest economies leads to global trade contraction and investment sentiment deterioration. The IMF has warned that if the US-China trade war intensifies, global economic growth could decline by more than 0.5 percentage points. In particular, the phenomenon of 'decoupling' where global supply chains split into US-centered and China-centered networks is accelerating. The US is strengthening 'friend-shoring' through USMCA and IPEF, while China is expanding its sphere of influence through RCEP and the Belt and Road Initiative. This blocking reduces global trade efficiency and deepens the strategic dilemma for countries like Korea that have high dependency on both the US and China.
Third, global economic uncertainty is increasing alongside strengthened protectionism. High US tariffs raise inflationary pressure, which can constrain economic stimulus through interest rate cuts. Additionally, investment contraction due to intensified trade conflicts may hinder productivity improvement and technological innovation. Emerging countries in particular face a high possibility of weakened growth momentum due to reduced access to developed markets and decreased investment attraction. This increased uncertainty weakens the growth momentum of the global economy and acts as a factor expanding financial market volatility.
US protectionist policies can be viewed as part of structural and long-term changes rather than a short-term phenomenon. This increases global economic uncertainty and accelerates the blocking of trade structures. For countries with high external dependence like Korea, this presents a serious challenge but also a strategic opportunity to respond to global supply chain reorganization.
💡 Impact on Korea's Key Industries and Response Directions
Let's examine the impact of US protectionist policies on Korea's core industries and response directions for each industry.
First, the automotive industry is taking the most direct hit. The US accounts for about 30% of Korea's automotive export market, making it a crucial market. The 25% high tariff is significantly weakening the price competitiveness of Korean automobiles. Hyundai and Kia exported about 900,000 vehicles to the US last year, but tariffs are expected to reduce this by up to 300,000 units. In response, the automotive industry is expanding US local production, accelerating the transition to electric vehicles, and strengthening software capabilities. Particularly important is the strategy of bypassing tariff barriers by expanding electric vehicle production utilizing benefits from the US Inflation Reduction Act (IRA). The industry is also pursuing expansion of production bases within USMCA regions such as Mexico and increased entry into emerging markets like Southeast Asia and India.
Second, the semiconductor industry is at the frontline of US-China conflict. It faces a double challenge with US semiconductor export restrictions to China and simultaneous tariffs on Korea. Stock prices of Samsung Electronics and SK Hynix fell by a respective 6.8% and 7.2%. However, due to the product characteristics of semiconductors, demand reduction due to tariffs may be relatively limited as there are few substitutes. The industry is strengthening competitiveness through securing advanced process technology, expanding US investment, and developing AI semiconductors. Particularly important is the strategy of securing technological leadership through expanded local production and R&D investment utilizing support from the US CHIPS Act. The industry is also making parallel efforts to secure stable demand through strengthened strategic partnerships with global customers.
Third, the refining and petrochemical industries are suffering from global demand downturn and margin pressure. International oil prices are at a four-year low in the low $60s per barrel. More seriously, refining margins are below $1 per barrel, far below the break-even point (4-5 dollars). This is mainly due to China's economic slowdown and expanded export of petroleum products, as well as global oversupply. Additionally, petrochemical product demand is contracting due to US tariff impositions and the intensified US-China trade war. The industry is responding by adjusting refinery operation rates, expanding high-value-added product production, and diversifying into eco-friendly energy. In particular, investment is expanding for securing future growth engines such as hydrogen, battery materials, and biofuels.
Korea's major industries face multiple challenges including US protectionist policies, the US-China trade war, and global demand downturn. While focusing on mitigating tariff impacts and defending profitability in the short term, strategies to turn crisis into opportunity through strengthened technological competitiveness, diversified production bases, and business structure innovation are needed in the medium to long term.
💡 Long-term Strategies for Strengthening Economic Resilience
Let's explore medium to long-term strategies for the Korean economy to enhance resilience to external shocks and achieve sustainable growth.
First, strengthening industrial competitiveness and securing technological leadership is key. Price barriers such as tariffs must ultimately be overcome through technological competitiveness. Each industry needs to secure price premiums through next-generation technology development and higher value-added production. In particular, it's important to expand R&D investment in future growth engines such as AI, eco-friendly energy, and biotechnology, and to accelerate digital transformation. This requires building an innovation ecosystem where government (through regulatory innovation, talent development, and financial support) collaborates with businesses, academia, and research institutions. Additionally, preparing for technology blocking between countries requires increasing self-sufficiency in core technologies and actively participating in securing global technology standards.
Second, risk diversification through market and supply chain diversification is necessary. Excessive dependence on specific countries inevitably makes economies vulnerable to external shocks. Export market diversification requires strengthening pioneering efforts in emerging markets such as India, ASEAN, the Middle East, and Latin America, and diversifying export items and services. Additionally, global production networks should be reconfigured to respond to geopolitical risks. Supply chain shock resilience should be enhanced through expanded local production, diversified procurement sources for key components and raw materials, and strategic inventory securing. Particularly important is considering Korea's strategic positioning in the US-China competitive structure, and adopting a flexible approach to maintain business in both markets simultaneously.
Third, strengthening the domestic base and building a balanced economic structure is important. To improve the export-dependent structure of the Korean economy, it is essential to enhance domestic market vitality. This requires regulatory reform to nurture the service industry, strengthening the small business and startup ecosystem, and expanding consumption base through income growth. Particularly important is the development of new industries such as healthcare, digital content, and eco-friendly consumer goods in response to an aging society. Additionally, improving resilience to economic shocks requires reducing income polarization and strengthening social safety nets. Ultimately, an economic structure balancing exports and domestic demand, manufacturing and services, is key to long-term stability and growth potential.
The external challenges facing the Korean economy can be both a short-term crisis and an opportunity for structural improvement. A more resilient and sustainable economic structure should be built through strengthened technological competitiveness, diversified markets and supply chains, and expanded domestic base. This requires consistent policy support from the government, innovative efforts from businesses, and social consensus.
4️⃣ In Conclusion
The Korean economy faces complex challenges with the strengthening of US protectionist policies, reignition of the US-China trade war, and global demand downturn converging. As the US imposed 25% high tariffs on Korean products and trade conflicts with China intensified, the KOSPI showed a sharp decline, falling below the 2400 threshold. Additionally, the refining industry is in crisis with international oil price declines and refining margin deterioration.
In this crisis, the government is preparing response measures focused on supporting export companies, stabilizing employment, and stimulating domestic demand through a supplementary budget of approximately 15 trillion won. However, this helps only to mitigate short-term shocks and is difficult to consider a fundamental solution.
The automotive industry is responding through expanded US local production and accelerated electric vehicle transition; the semiconductor industry through securing advanced technology and expanded US investment; and the refining industry through business diversification into eco-friendly energy. Each industry is commonly trying to overcome the crisis through strengthened technological competitiveness, diversified production bases, and business structure innovation.
In the long term, the Korean economy needs to improve its economic structure by reducing dependence on specific markets and industries, securing technological leadership, diversifying markets, and strengthening the domestic base. Strategic positioning between the US and China and flexible strategies responding to global supply chain reorganization have become especially important.
Ultimately, this crisis reveals the structural vulnerabilities of the Korean economy while potentially serving as an opportunity for structural improvement. A strategic approach is needed with short-term financial support alongside medium to long-term competitiveness enhancement. It is time for the government, businesses, and citizens to overcome the crisis together and turn it into an opportunity for new advancement.