🚨 Intensification of US-China Protectionism and Trade Dependency Crisis: Supply Chain Stabilization through Strategic Interdependence

Today Korean Economic News | 2025.04.12

📌 US-China Enter Final Tariff Battle... Global Economy in Tension

💬 The trade war is intensifying again as the United States and China impose tariffs exceeding 100% on each other. The US has imposed high retaliatory tariffs on Chinese electronic products and batteries, while China has imposed high retaliatory tariffs on US agricultural products and energy resources. As neither country backs down, global supply chains and consumer markets are simultaneously shaking. South Korea, as a third country, is exposed to direct and indirect shocks due to its economic structure with high trade dependency, and it is urgent to find new response measures through strategic interdependence.

1️⃣ Easy Understanding

The United States and China are intensifying the trade war by imposing ultra-high tariffs on each other. Let me explain how this situation affects the global economy and South Korea.

President Trump has significantly increased tariffs on Chinese products, further strengthening his "America First" policy since taking office. In particular, he has imposed tariffs of up to 120% on electronic products, batteries, and solar panels. China immediately responded by imposing retaliatory tariffs of over 100% on US agricultural products, energy resources, and aircraft parts.

The full-scale tariff war between the two countries is severely disrupting global supply chains. As the two pillars of the world economy, the trade dispute between the US and China is leading to rising raw material prices, production disruptions, and consumer price increases. In fact, the IMF has predicted that this trade war will reduce global economic growth by 0.7 percentage points.

South Korea is taking a bigger hit due to its economic structure with high trade dependency. With foreign trade dependency approaching 80%, South Korea is under pressure from both sides due to its high export and import proportions to both the US and China. In particular, China is South Korea's largest export market and supplier of intermediate goods, and China's economic contraction has ripple effects across South Korean industries.

In this situation, 'strategic interdependence' is emerging as a new response measure. This is a strategy to build complementary relationships with various countries in key areas, rather than complete self-reliance or dependence on specific countries. The Korean government is trying to mitigate the impact of the US-China trade war through supply chain diversification, strengthening the competitiveness of key industries, and pioneering emerging markets.

This trade war is likely to lead to a reorganization of the global economic order beyond the short-term shock. It is time for South Korea to take this change as both a crisis and an opportunity, preparing for a new leap through industrial structure innovation and strengthening its economic constitution.

2️⃣ Economic Terms

📕 Protectionism

Protectionism is a policy that restricts imports through tariffs or non-tariff barriers to protect domestic industries.

• Recently, the United States and China have been maximizing protectionist policies by imposing high tariffs on each other.
• It has the effect of protecting domestic industries in the short term, but hinders global economic growth in the long term.

📕 Trade Dependency

Trade dependency is an indicator that shows the proportion of exports and imports in a country's economy.

• Formula: (Export amount + Import amount) ÷ GDP × 100
• South Korea's trade dependency is about 80%, which is much higher than major developed countries (US 30%, Japan 35%, EU 40%).

📕 Strategic Interdependence

Strategic interdependence is a strategy that builds complementary interdependent relationships between countries in specific fields to enhance economic stability.

• It builds multilateral cooperation systems in key areas, rather than complete self-sufficiency or unilateral dependence.
• It is a new international economic cooperation model that balances national security and economic interests.

📕 Supply Chain Reshoring

Supply chain reshoring is the phenomenon of relocating production facilities that had expanded overseas back to the home country.

• It has emerged as a strategy for stabilizing global supply chains after COVID-19 and US-China trade conflicts.
• The trend is evolving toward 'friendshoring' (cooperation between allied countries) rather than complete domestic production.

3️⃣ Principles and Economic Outlook

💡 Deepening US-China Tariff War and Global Economic Impact

• Let's analyze the background of the rapidly intensifying tariff war between the US and China and its impact on the global economy.

  • First, the essence of the US-China tariff war is a hegemonic competition beyond economics. President Trump strengthened pressure on China by advocating "America First" immediately after taking office. The recent imposition of tariffs of up to 120% on Chinese electronic products, batteries, and solar panels can be seen as an intention to check China's growth in advanced technology fields beyond simply resolving trade imbalances. China is also responding strongly by imposing retaliatory tariffs of over 100% on US agricultural products, energy resources, and aircraft parts. In particular, high tariffs on agricultural products are a strategic choice targeting agricultural regions that are President Trump's core support base. The conflict between the two countries is expanding beyond trade to various areas such as technology standards, digital economy, and global governance, which is likely to lead to a fundamental reorganization of the world economic order.

  • Second, 'decoupling' and blockization in the world economy are accelerating. As the US-China conflict becomes prolonged, the phenomenon of global supply chains being divided into US-centered and China-centered is intensifying. The US is strengthening economic and security cooperation with its allies through USMCA, IPEF, AUKUS, etc., while China is expanding its sphere of influence centered on RCEP and the Belt and Road Initiative. This economic blockization is causing decreased global trade efficiency and investment contraction. The IMF has predicted that this tariff war will reduce global economic growth by up to 0.7 percentage points. In particular, global trade volume is expected to slow significantly from 3.3% growth in 2024 to 1.5% growth in 2025. This trade reduction is expected to have a greater impact on emerging and developing countries.

  • Third, high tariffs are exacerbating global inflationary pressure. The high tariffs imposed by the US and China ultimately lead to increased production costs for businesses and higher consumer prices. In the case of the US, tariffs on Chinese products are estimated to increase the consumer price index by 0.4 percentage points, which means an increase in household burden of about $1,300 per year. Increased inflationary pressure can also act as a constraint on the monetary policy of major central banks. There is an increasing risk of 'stagflation', where inflationary pressures persist amid slowing growth, imposing a double burden on both businesses and consumers. Also, the rise in raw material and intermediate goods prices affects the entire global supply chain, negatively impacting trade between third countries.

• The US-China tariff war is leading to structural changes in the global economic order beyond short-term trade disputes. Complex shocks such as the blockization of world trade, supply chain reorganization, and increased inflationary pressure are expected, which requires all countries to adapt to the new economic paradigm and establish strategies.

💡 South Korea's Vulnerabilities and Crisis Response Strategies

• Let's look at the vulnerabilities faced by the Korean economy with high trade dependency and response strategies to overcome the crisis.

  • First, South Korea is taking a direct hit from the US-China conflict due to its high trade dependency. South Korea's trade dependency is about 80%, which is much higher than major developed countries (US 30%, Japan 35%, EU 40%). In particular, China (25.3%) and the US (14.6%) account for nearly 40% of exports. Also, China is a major export destination for South Korea's intermediate goods and a source of raw materials, and China's economic slowdown affects the entire industrial ecosystem of South Korea. In fact, after the recent intensification of the US-China tariff war, South Korea's exports decreased by 5.2% compared to the same period last year, and exports to China decreased by 8.7%. The impact on key industries such as semiconductors (-7.8%), displays (-12.3%), and auto parts (-6.5%) is particularly notable. The Korean economy has a weak domestic base and an industrial structure biased towards exports, making it relatively vulnerable to external shocks.

  • Second, a new response measure through strategic interdependence is needed. Strategic interdependence is a strategy to build complementary relationships with various countries in key areas, rather than complete self-sufficiency or unilateral dependence on specific countries. South Korea must secure an essential position in the global value chain based on technological superiority in key industries such as advanced semiconductors, batteries, and future mobility. At the same time, it is necessary to diversify the sources of key raw materials and parts, and strengthen strategic cooperation with the US, EU, Japan, India, ASEAN, etc. The Korean government is already pursuing a 'K-supply chain stabilization strategy' for key strategic materials, and companies are also pursuing production base diversification and risk management strengthening. In particular, it has become important to establish a base for bypass exports by expanding investments in Vietnam, India, Mexico, etc.

  • Third, strengthening the domestic base and securing new growth engines is urgent. Activating the domestic market is essential to increase resilience to external shocks. Regulatory reform to foster the service industry, strengthening small and medium-sized enterprises and startup ecosystems, and policy support for stimulating consumption are needed. Also, the industrial structure needs to be diversified by expanding investment in new growth areas such as digital transformation, green energy, and biohealth. The government plans to execute investments of 25 trillion won through the 'Industrial Innovation 5-Year Plan', and the private sector is also actively seeking to discover new industries with less impact from the US-China conflict. In particular, it is important to secure long-term growth engines by expanding R&D investment in future technologies such as artificial intelligence, robotics, and space industry.

• The Korean economy is facing short-term difficulties due to the deepening of the US-China trade conflict, but this should be taken as an opportunity for economic constitution improvement and industrial structure innovation. It is important to build an economic system strong against external shocks through strengthening the position in the global value chain through strategic interdependence, expanding the domestic base, and discovering new growth engines.

💡 Future Global Economic Order and South Korea's Strategic Positioning

• Let's look at the new global economic order that will form after the US-China conflict and South Korea's strategic positioning.

  • First, 'geoeconomic fragmentation' in the global economy is expected to deepen. Geoeconomics refers to achieving geopolitical goals through economic means, and the US-China conflict is a typical example of such geoeconomic competition. In the future, the world economy is likely to evolve into a form of 'fragmented globalization', neither complete globalization nor complete blockization. In particular, decision-making where security and economy are closely combined will become important in strategic fields such as advanced technology, energy, food, and mineral resources. The US is already encouraging domestic production of key industries through the CHIPS Act, IRA, etc., and China is also attempting to transition to a domestic consumption-centered growth model through its 'dual circulation' strategy. These changes mean the emergence of a new economic paradigm where stability and security are more valued than the efficiency of global supply chains.

  • Second, South Korea needs a balanced approach through 'strategic hedging'. Strategic hedging is inevitable for South Korea, which needs to maintain close relationships with both the US and China. Beyond the dichotomous approach of security with the US and economy with China, differentiated strategies by field should be employed. This means strengthening cooperation with the US and allied countries in advanced technology and security fields, while actively utilizing the Chinese market in fields such as consumer goods and cultural content. Also, efforts to reduce dependence on specific markets by diversifying economic cooperation to India, ASEAN, the Middle East, Europe, etc. should be pursued simultaneously. The government's recent export market diversification through the 'K-matchmaking' program and cooperation strengthening through the 'New Southern and Northern Policy 2.0' have important significance in this context.

  • Third, qualitative advancement of the industrial structure and strengthening of advanced technology capabilities are key. Given that the essence of the US-China tariff war is a competition for hegemony in advanced technology, it is most important for South Korea to secure technological superiority in advanced industries such as semiconductors, batteries, AI, and bio. To this end, it is necessary to expand R&D investment from the current 4.8% of GDP to 6% by 2030, and focus on nurturing core talent and protecting technology. Also, it is necessary to develop core technologies and materials that can play a 'bottleneck' role in the global value chain to build an irreplaceable position. Along with this, it is also important to capture new growth opportunities by accelerating the transition to future-oriented industrial structures such as carbon neutrality and circular economy. Such qualitative leaps are essential for sustainable growth amid the prolonged US-China conflict.

• South Korea's successful positioning in the global economic order being reorganized by the US-China conflict has become a key task for national competitiveness. It is important to build an economic constitution strong against external shocks by maintaining a balanced relationship with both the US and China through 'strategic interdependence' and 'strategic hedging', while qualitatively advancing the industrial structure and strengthening the domestic base. This will be a process of establishing a sustainable growth model for the Korean economy in the new global economic environment, beyond simple crisis management.

4️⃣ In Conclusion

The global economy is facing serious uncertainty as the tariff war between the United States and China intensifies with tariffs exceeding 100%. As President Trump's 'America First' and China's strong response collide, structural changes are underway with world trade becoming blockized and supply chains being reorganized. The IMF has predicted that this trade war will reduce global economic growth by 0.7 percentage points.

In this situation, the Korean economy, with foreign trade dependency approaching 80%, is facing an even bigger challenge. It is being hit simultaneously from both sides due to its high export and import dependence on both the US and China, and a clear decline is already appearing in major export industries. In particular, the reorganization of global supply chains is demanding fundamental changes in the Korean industrial structure centered on intermediate goods exports.

In response to this, a new approach called 'strategic interdependence' is emerging. This is a strategy to build complementary relationships with various countries in key areas, rather than complete self-sufficiency or dependence on specific countries. The Korean government is pursuing supply chain diversification and strengthening technological competitiveness of key industries through the 'K-supply chain stabilization strategy', and companies are also pursuing production base diversification and risk management.

In the long term, it is important to build an economic constitution strong against external shocks through strengthening the domestic base, qualitatively advancing the industrial structure, and securing new growth engines. In particular, it is necessary to secure an essential position in the global value chain by maintaining balanced positioning through 'strategic hedging' between the US and China, while enhancing competitiveness in advanced technology fields.

The US-China trade war can be a turning point for improving the constitution of the Korean economy as well as a short-term crisis. It should be taken as an opportunity to enhance competitiveness in the new global economic order through overcoming the structural vulnerability of high trade dependency, and through technological innovation and industrial diversification.