🚨 Tariff Barriers Become the New Normal
Today Korean Economic News for Beginners | 2025.12.15
0️⃣ One-Fifth of G20 Trade Blocked, Warning for Korean Exports
📌 Trade Restrictions at Record High… EU's CBAM and Steel Regulations Begin in Earnest
💬 According to the World Trade Organization (WTO), trade restrictions by G20 countries increased to record levels over the past year. Import restrictions affected over $4 trillion worth of goods, with 22% of all G20 imports subject to various regulations. As tariff increases and protectionist policies become structural rather than temporary measures, warning signs are flashing for export-dependent economies like Korea. Starting in 2026, the EU's Carbon Border Adjustment Mechanism (CBAM) will be fully implemented, and the Tariff Rate Quota (TRQ) for steel products will be significantly reduced, substantially increasing the burden on Korean exporters. Experts warn that "with protectionism becoming the new normal, a complete review of export strategies is urgently needed."
1️⃣ Understanding Simply
The global trade environment is changing rapidly. As countries raise tariffs and make import conditions stricter to protect their own industries, the era of free trade is coming to an end.
Let me explain what trade restrictions are. Trade restrictions are limits placed on goods coming from other countries. The most common method is tariffs – like saying "if you want to sell this product in our country, pay 10% of the price as tax." When tariffs are high, imported goods become more expensive, making domestic products relatively more competitive.
But nowadays, it's not just about tariffs. Countries use many methods: blocking exports if environmental standards aren't met, imposing anti-dumping tariffs on subsidized products, or limiting import quantities altogether.
According to a WTO investigation, trade restrictions introduced by G20 countries (the world's top 20 economies) over the past year reached record levels. These restrictions affected goods worth over $4 trillion. How much is $4 trillion? Korea's annual GDP is about $2 trillion, so this is more than double that amount.
What's more shocking is that 22% of goods imported by G20 countries – more than one in five – are already subject to some form of restriction. In the past, most goods could freely cross borders, but now one out of every five faces barriers.
Why is this happening? There are several reasons.
First, after COVID-19, countries started protecting their own industries. During the pandemic, they struggled to import essential items like masks and medicines from other countries. This created a mindset of "let's make important things ourselves."
Second, the US-China trade war continues. The tariff war that started during Trump's presidency continued under Biden, and with Trump's re-election, it's expected to intensify. When the US imposes high tariffs on Chinese products, China retaliates, and this spreads like a chain reaction.
Third, climate change response is becoming a new trade barrier. The EU will fully implement the Carbon Border Adjustment Mechanism (CBAM) starting in 2026. What is this? Simply put, it means "your product released a lot of carbon during production, so pay money for that." While it appears to be about environmental protection, it effectively adds costs to imported goods, protecting domestic industries.
Steel regulations particularly affect Korea. Starting next year, the EU will significantly reduce the Tariff Rate Quota (TRQ) for steel products. TRQ is "a system that applies low tariffs up to a certain quantity and high tariffs on excess amounts." For example, if 1 million tons of Korean steel were imported tariff-free last year, next year only 500,000 tons might be tariff-free, with 25% tariffs on the rest.
Korean steel companies like POSCO will inevitably suffer. Even selling the same product, prices go up due to tariffs, reducing competitiveness. To maintain EU market share, they must lower prices, which hurts profitability.
The Carbon Border Adjustment Mechanism (CBAM) is also problematic. Making steel requires burning coal, which produces carbon dioxide. Korea's steel industry still has high carbon emissions. The EU will calculate these carbon emissions and impose costs. With tens of dollars added per ton, price competitiveness decreases.
For example, let's say Korean steel company A exports 1 million tons of steel to the EU. Last year, they sold it at $500 per ton, earning $500 million. But starting next year, with reduced TRQ, only half is tariff-free, with 25% tariffs on the other half. Plus, CBAM adds $50 per ton in additional costs. Actual profits will drop significantly.
This isn't just a steel problem. Aluminum, cement, fertilizer, and chemical products face similar regulations. Eventually, many of Korea's main export items will likely be affected.
The bigger problem is that this trend isn't temporary. In the past, it was like "let's raise tariffs temporarily because the economy is bad," but now there's a growing perception that "protecting domestic industries is a long-term policy." Protectionism is becoming the new normal.
Korea is a country with very high export dependence. More than 40% of GDP comes from exports. With a small domestic market, the structure relies on exports for survival. When the world starts closing its doors, it's a big problem.
So how should we respond? Companies are considering several strategies.
First, local production. Build factories directly in countries with strict regulations. For example, making steel in the EU avoids CBAM. Of course, building local factories costs a lot, but it can be advantageous long-term.
Second, introduce eco-friendly processes. Investing in carbon-reducing technology can lower CBAM burdens. POSCO is already developing hydrogen reduction steelmaking technology. Making iron with hydrogen instead of coal produces almost no carbon emissions. But this technology still needs time to become commercially viable.
Third, shift to high-value products. While competing in general steel against China is difficult, special products like ultra-high-strength steel plates for electric vehicles have high technology barriers and can maintain competitiveness. Even with slight price increases, they'll sell if there are no substitutes.
Fourth, diversify export markets. When the EU and US block access, we need to find other markets. Emerging markets like India, Southeast Asia, the Middle East, and Africa are alternatives. These regions are growing rapidly and have strong demand.
The government is also responding with trade negotiations to ease regulations, support companies' eco-friendly transitions, and expand FTAs (Free Trade Agreements). But fundamentally, companies must strengthen their own competitiveness.
Ultimately, the era of tariff barriers has arrived. The golden age of free trade has ended, and an era of survival of the fittest has come. Korean companies must quickly adapt to this new environment to survive.
2️⃣ Economic Terms
📕 Protectionism
Protectionism is a policy that restricts imports to protect domestic industries.
- Various methods are used, including tariff increases, import quotas, and non-tariff barriers.
- While it protects domestic industries short-term, it can lead to reduced trade volume and retaliatory measures long-term.
- It's the opposite of free trade, and protectionist policies are strengthening globally.
📕 Carbon Border Adjustment Mechanism (CBAM)
CBAM is a system introduced by the EU that charges costs based on carbon emissions during the production of imported goods.
- It will be fully implemented starting in 2026, targeting steel, aluminum, cement, fertilizer, and electricity.
- While justified by environmental protection, it's actually a new form of trade barrier disadvantaging countries with high carbon emissions.
- It will be a significant burden for export countries with manufacturing-focused economies like Korea.
📕 Tariff Rate Quota (TRQ)
TRQ is a system that applies low tariffs up to a certain quantity and high tariffs on excess amounts.
- It stands for Tariff Rate Quota and is a tool for controlling import volumes.
- The EU plans to significantly reduce TRQs for steel products starting in 2026.
- When TRQs decrease, the volume that can be exported tariff-free drops, increasing burdens on exporters.
📕 Non-Tariff Barriers
Non-tariff barriers are measures that restrict imports through methods other than tariffs.
- Examples include environmental standards, safety standards, quality certifications, and subsidy regulations.
- While superficially having legitimate purposes, they effectively discriminate against foreign products.
- As non-tariff barriers increase, the trade environment becomes more complex.
3️⃣ Principles and Economic Outlook
✅ The Structuring of Protectionism as the New Normal
As protectionism becomes a long-term policy rather than a temporary response, the global trade order is fundamentally changing.
First, the pandemic legitimized domestic industry protection. During COVID-19, countries realized how dangerous it is to depend on imports for essential goods. If only other countries make masks, vaccines, and semiconductors, they can't be secured in emergencies. This created consensus that "strategic goods must be produced domestically." The US CHIPS Act and EU's strategic autonomy policy are prime examples. These policies are long-term industrial strategies, not short-term economic responses, so they won't be easily withdrawn.
Second, geopolitical conflicts accelerate economic bloc formation. The US-China conflict has expanded beyond simple trade issues to technology dominance and security competition. The US restricts semiconductor exports to block China's advanced technology development, while China weaponizes rare earth exports. In this conflict, countries are forced to choose sides, forming trade blocs by camp. Countries like Korea that trade with both sides face dilemmas.
Third, climate change response becomes a new trade barrier. CBAM is just the beginning. Going forward, various environmental standards like plastic use regulations, electric vehicle battery recycling requirements, and deforestation prevention rules will become trade conditions. Developed countries can meet these standards because they've already invested in eco-friendly technology, but developing countries and manufacturing-focused nations face additional costs. Under the guise of environmental protection, de facto protectionism occurs.
The structuring of protectionism means not just a few percentage points in tariffs, but a complete restructuring of the global trade system.
✅ Vulnerability of Export-Dependent Economies
Countries with high export ratios like Korea are particularly vulnerable to strengthening trade barriers.
First, export diversification is limited. A significant portion of Korean exports is concentrated in the US, EU, and China. When all three markets strengthen protectionist policies, there aren't many alternatives. While looking to emerging markets like India and Southeast Asia, these markets are also protecting their own industries. India is raising tariffs not just on Chinese products but on products from other countries too. Ultimately, destinations are shrinking.
Second, industrial structure rigidity is problematic. Korea is centered on heavy chemical and advanced manufacturing industries like steel, petrochemicals, automobiles, and semiconductors. These industries require large-scale facility investments and are difficult to change once established. Even when regulations strengthen, you can't easily say "let's make something else." In contrast, service industries and software can respond relatively flexibly. Korea's high manufacturing ratio makes structural transformation slow.
Third, SMEs lack response capacity. Large companies like Samsung or Hyundai can afford to build local factories or invest in eco-friendly technology, but small and medium export companies lack such capital. Reducing carbon emissions to respond to CBAM requires process improvements costing billions. SMEs without this money may ultimately be pushed out of the market. While large companies survive, if SMEs collapse, it severely impacts jobs and regional economies.
A long-term strategy to reduce export dependence and grow domestic demand and service industries is needed, but achieving this short-term is difficult.
✅ Direction of Response Strategies
To survive the protectionist era, both companies and governments must change strategies.
First, localization strategy is essential. In markets with strict regulations, direct production is advantageous. This is why Hyundai builds factories in the US. Cars made in the US are American-made, avoiding tariffs and subsidy restrictions. While localization costs money, it secures market access long-term. However, excessive localization weakens domestic production bases and reduces jobs.
Second, differentiate through technological innovation. General products can't compete with China on price. But high-value products – those with high technology barriers – can command premiums. SK Hynix's HBM is a prime example. HBM, essential for AI semiconductors, requires technological capability to produce, so there's demand even with tariff increases. Steel is the same. Moving from general steel to special products like ultra-high-strength steel plates for electric vehicles maintains competitiveness.
Third, invest boldly in eco-friendly transitions. Environmental regulations like CBAM will only strengthen. Not investing now means paying higher costs later. Examples include POSCO's hydrogen reduction steelmaking and Hyundai's electric vehicle transition. Governments must also actively support companies' eco-friendly transitions by improving carbon credit trading systems, subsidizing eco-friendly technology R&D, and expanding green finance.
The key in the protectionist era is adaptability. Only companies and countries that respond quickly to change can survive.
4️⃣ In Conclusion
The fact that one-fifth of G20 trade is subject to regulations shows that the era of free trade is ending. Protectionism is establishing itself not as a temporary phenomenon but as the new normal.
Particularly, the EU's CBAM and steel TRQ reduction starting in 2026 pose real threats to Korean export companies. Even selling the same products incurs additional costs, and export volumes are restricted. Not just steel, but many of Korea's main export items including aluminum and chemical products will be affected.
In this situation, Korea's response options are limited. Short-term, it's important to ease regulations or secure grace periods through trade negotiations. But fundamentally, industrial structure must change.
First, localization. Building factories directly in major markets avoids regulations. While costly, it secures market access long-term.
Second, moving to high-value products. General products can't compete with China. We must shift to technology-intensive, eco-friendly products to command premiums.
Third, market diversification. When the EU and US block access, we must develop new markets like India, Southeast Asia, and the Middle East. While these markets aren't completely open either, entry barriers are lower than developed countries.
Fourth, eco-friendly transition. Environmental regulations like CBAM are unavoidable. We must invest boldly in carbon-reducing technology. While costly now, it's competitiveness long-term.
The government also needs an active role. Representing Korean companies' interests in trade negotiations, supporting eco-friendly transitions, helping develop new markets, and expanding the FTA network.
Individual investors should also note these changes. We must distinguish between companies that will be hurt by strengthening protectionism and those that will gain opportunities. Companies successful in localization, with eco-friendly technology, and making high-value products will be relatively advantageous.
Ultimately, the era of tariff barriers is an unavoidable reality. The only way to survive is to face this reality and adapt quickly. There's no time to miss the golden age of free trade. Now is the time to learn the new rules of the game and devise strategies accordingly.
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