🚨 Retaliatory Tariffs: A Representative Measure in Trade Conflicts Between Nations

Today Korean Social News | 2025.04.22

📌 US-China Shipping Tariff Conflict... Korean Shipbuilding and Shipping Industries Expect Indirect Benefits

💬 The United States has announced regulations imposing high port entry fees on Chinese vessels. This measure follows the assessment that Chinese government support for its shipbuilding and shipping industries undermines U.S. competitiveness. As a result, the Korean shipbuilding industry anticipates increased orders due to reduced demand for Chinese vessels. The Korean shipping industry is also exploring opportunities to strengthen its competitiveness compared to Chinese shipping companies.

Summary

• Retaliatory tariffs are additional tariffs imposed in response to unfair trade practices by specific countries.
• They are used as a means to protect domestic industries and pressure other countries in trade disputes.
• While they may protect certain industries in the short term, they can lead to reduced international trade and price increases in the long term.

1️⃣ Definition

Retaliatory tariffs refer to additional tariffs imposed on exports from a specific country in response to that country's unfair trade practices or policies. Simply put, they are economic countermeasures that say, "If you're going to do that to us, we'll do this to you" when another country takes unjustified measures against our products.

Retaliatory tariffs are used as a means to protect domestic industries and pressure other countries in trade disputes.

💡 Why is this important?

• They are powerful economic sanctions that directly affect international trade order.
• When tariffs are imposed, they increase product prices, affecting consumers and businesses.
• If trade disputes escalate, they can have negative ripple effects on the global economy.

2️⃣ Characteristics and Impact of Retaliatory Tariffs

📕 Types and Grounds for Retaliatory Tariffs

• Retaliatory tariffs come in various types. They appear in different forms depending on their purpose and basis. First, anti-dumping tariffs are imposed when foreign companies sell products in the domestic market at prices lower than production costs. Second, countervailing duties are imposed in response to unfair subsidies from foreign governments. Third, safeguard tariffs are imposed to prevent damage to domestic industries from import surges. Fourth, Section 301 tariffs (in the U.S. case) are tariffs imposed to counter unfair trade practices. Finally, general retaliatory tariffs are imposed as a response to tariffs imposed by another country.

• Imposing retaliatory tariffs requires legal and political grounds. Legitimate grounds are necessary to impose retaliatory tariffs. Under international law, they are only justified when unfair trade practices are proven in accordance with WTO (World Trade Organization) regulations. Each country's domestic laws also provide legal grounds for imposing retaliatory tariffs. Examples include Section 301 of U.S. trade law and Korea's Customs Act. Politically, they are often justified by goals such as protecting domestic industries, preserving jobs, and reducing trade deficits. They are also used as strategic tools to strengthen negotiating power in international negotiations.

📕 Impact and Ripple Effects of Retaliatory Tariffs

• Retaliatory tariffs have various economic impacts. The economic impacts of retaliatory tariffs are extensive. First, import prices rise. Tariffs are ultimately reflected in product prices, increasing the burden on consumers. Second, import and export structures change. Trade with countries subject to tariffs decreases, and trading partners may shift to other countries. Third, supply chains are reorganized. Global companies may relocate production bases or restructure supply chains to avoid tariffs. Fourth, they affect industrial competitiveness. Domestic industries may be protected in the short term, but there are concerns about reduced competitiveness in the long term due to lack of competition.

• Retaliatory tariffs also have political and diplomatic ripple effects. Beyond economic aspects, retaliatory tariffs also affect international relations. First, there is a risk of trade disputes expanding. One country's retaliatory tariffs can lead to additional retaliation from the other country, creating a vicious cycle. Second, bilateral relations may deteriorate. Economic issues can spread to political and diplomatic conflicts. Third, the international trade order is weakened. The WTO-centered multilateral trade system may weaken, and power dynamics between countries may strengthen. Fourth, regional bloc formation intensifies. Trade disputes may lead to stronger regional economic blocs.

Key Issues with Retaliatory Tariffs

1. Effectiveness: Are retaliatory tariffs actually effective in improving unfair trade practices?
2. Consumer Burden: The problem of price increases being passed on to consumers
3. Impact on Domestic Industries: Increased production costs for domestic manufacturing when tariffs are imposed on imported intermediate goods
4. WTO Compatibility: Whether retaliatory tariffs comply with international trade norms
5. Risk of Escalation: Possibility of trade wars expanding through cycles of retaliation
6. Global Supply Chains: Disruption of international division of labor and supply chain reorganization
7. Third-Country Effects: Positive and negative impacts on third countries due to trade diversion
8. Long-term Economic Growth: Negative impact of increased protectionism on long-term economic growth
9. Currency Impact: Issue of tariff disputes increasing currency volatility
10. Negotiation Tool: Effectiveness and limitations as a means to strengthen negotiating power

3️⃣ Major Cases and Implications

✅ Major Global Cases of Retaliatory Tariffs

• The US-China trade dispute is a representative case of retaliatory tariffs. The US-China trade dispute, which intensified from 2018, is the largest case showing the impact of retaliatory tariffs. The Trump administration imposed large-scale tariffs on Chinese products citing unfair trade practices, intellectual property infringement, and forced technology transfer. In the first phase, tariffs were imposed on steel and aluminum, later expanding to solar panels, washing machines, and more. Eventually, an average tariff of 19.3% was imposed on about $370 billion worth of Chinese products. China responded by imposing an average tariff of 21.1% on $120 billion worth of American products. China particularly targeted key U.S. exports like agricultural products and automobiles. This trade dispute significantly reduced trade between the two countries and led to a reorganization of global supply chains.

• There are various recent cases of retaliatory tariffs. Besides the US-China trade dispute, there are several other cases of retaliatory tariffs. First, in the EU-US aircraft subsidy dispute, both sides imposed tariffs on each other's products due to subsidies. Second, in the Korea-Japan trade conflict, Japan strengthened export regulations on semiconductor materials, and Korea responded with a WTO complaint. Third, in the US-EU digital tax dispute, the U.S. threatened to impose tariffs on French products in response to the EU's digital tax. Fourth, Western economic sanctions against Russia after the Russia-Ukraine war and Russia's counterresponses can be seen as extended forms of retaliatory tariffs. Fifth, the recent US-China shipping and shipbuilding dispute shows the U.S. imposing high port entry fees on Chinese vessels, with China opposing this measure.

✅ Impact on the Korean Economy and Response Strategies

• Retaliatory tariffs have complex effects on the Korean economy. Countries with high trade dependence like Korea are greatly affected by retaliatory tariffs. First, there is a direct impact where Korean products lose export competitiveness if they become targets of retaliatory tariffs. U.S. tariffs on automobiles and steel, in particular, directly hit Korea's main industries. Second, the indirect impact of global trade contraction negatively affects Korea's export-oriented economy. Third, there is an offsetting effect where some industries may gain benefits as alternative export countries during US-China trade disputes. Fourth, supply chain impacts may change Korean companies' procurement and production structures during global supply chain reorganization. This may damage some industries but create opportunities for others.

• Strategies for the era of retaliatory tariffs are needed. Korea's response strategies in an environment where trade disputes have become commonplace include the following. First, export market diversification is necessary. Korea needs to reduce dependence on specific countries and explore new markets. Second, strengthening industrial competitiveness is important. Korea must develop products that maintain competitiveness despite tariffs through technological innovation and quality improvement. Third, trade diplomacy must be strengthened. Korea should support multilateral trade systems while expanding its FTA network with major countries. Fourth, risk management systems must be established. Companies need to monitor trade disputes and prepare response scenarios. Fifth, Korea must proactively respond to supply chain reorganization. It needs to capture new opportunities in the process of global supply chain restructuring.

4️⃣ Related Terminology

🔎 WTO (World Trade Organization)

• The WTO is an international organization that manages international trade rules and resolves disputes.
• The World Trade Organization (WTO) is an international organization that establishes international trade norms and resolves trade disputes. Founded in 1995 to replace GATT (General Agreement on Tariffs and Trade), it currently has 164 member countries. The WTO's core principles include most-favored-nation treatment (treating all member countries equally), national treatment (equal treatment of imported and domestic products), tariff concessions (promises to limit tariff rates), and transparency (disclosure of trade regulations). The WTO mediates trade conflicts between member countries through its dispute resolution system. The dispute resolution process goes through stages of consultation, panel establishment, ruling, appeal, and implementation. Regarding retaliatory tariffs, the WTO restricts member countries from unilaterally imposing tariffs but allows tariff imposition under specific conditions such as anti-dumping, countervailing duties, and safeguards. Recently, the WTO's role and authority have been weakening due to disputes like the US-China trade conflict, and reforms to address new trade issues such as digital trade and environment are being discussed.

🔎 Dumping

• Dumping is the practice of a company selling products in foreign markets at lower than normal prices.
• Dumping refers to companies selling products in foreign markets at lower prices than in their domestic markets. Specifically, it means export prices that are lower than domestic sales prices in the exporting country or below production costs. The main purposes of dumping include expanding foreign market share, eliminating competitors, and disposing of excess inventory. WTO regulations do not prohibit dumping itself but recognize the right to impose anti-dumping duties on dumping that causes "material injury" to domestic industries. To impose anti-dumping duties, the existence of dumping, injury to domestic industry, and a causal relationship between the two must be proven. Anti-dumping investigations are government-led and generally go through stages of initiation, preliminary determination, and final determination. The anti-dumping duty rate is determined by the dumping margin (the difference between domestic price and export price), and anti-dumping duties are generally maintained for 5 years. The anti-dumping system is an important tool to prevent unfair trade but is internationally controversial due to its potential for abuse as a protectionist measure.

🔎 Trade Diversion Effect

• The trade diversion effect refers to the phenomenon of trade partners changing due to tariffs.
• The trade diversion effect refers to the phenomenon where exports and imports shift from existing trade partners to other countries due to tariffs or trade regulations. For example, if Country A imposes high tariffs on products from Country B, importers in Country A will switch to products from Country C that are not subject to tariffs. The trade diversion effect has the following characteristics. First, it occurs due to changes in price competitiveness. When tariffs weaken the price competitiveness of products from a specific country, imports shift to relatively cheaper products from other countries. Second, it gives indirect benefits to third countries. Third countries that are not parties to the trade dispute gain export opportunities. Third, it can lead to reduced economic efficiency. Importing from producers who receive tariff benefits rather than the most efficient producers can result in inefficient resource allocation. Fourth, there is the possibility of circumventing exports. Circumventing exports through third countries may increase to avoid tariffs. During the US-China trade dispute, trade diversion effects to third countries such as Vietnam and Mexico were clearly observed, and countries like Korea also gained indirect benefits in some items.

5️⃣ Frequently Asked Questions (FAQ)

Q: What impact do retaliatory tariffs have on consumers?

A: Retaliatory tariffs affect consumers in several ways. The most direct impact is increased product prices. When tariffs are imposed on imports, those costs are mostly reflected in consumer prices. For example, products subject to a 25% tariff could see price increases of up to 25%. Additionally, the range of product choices is reduced. If some imports withdraw from the market due to tariffs, consumers' choices may be limited. This is especially inconvenient for consumers who prefer products from specific countries.

Tariffs also affect overall domestic prices. If tariffs are imposed not just on consumer goods but also on raw materials or intermediate goods, the prices of final products produced domestically may also rise. In the long term, there may also be indirect effects such as household income stagnation or job losses due to economic growth slowdown.

However, the consumer impact of tariffs varies depending on the item, availability of substitutes, and corporate pricing policies. Some companies reduce profits to minimize price increases, and price increases may be limited if domestic substitutes are abundant.

Q: What long-term impact do retaliatory tariffs have on the global economy?

A: Retaliatory tariffs can have various long-term impacts on the global economy. First, global trade contracts. Continuous imposition of tariffs reduces trade between countries, shrinking the size of world trade. The World Bank has estimated that widespread trade disputes could reduce global trade by up to 9%. This leads to economic growth slowdown. Since trade is a major driver of economic growth, reduced trade can lead to lower global economic growth rates.

Additionally, global supply chain reorganization accelerates. Companies tend to diversify or regionalize their supply chains to avoid tariff risks. This may increase costs in the short term but could lead to more resilient supply chains in the long term.

The intensification of trade bloc formation is also a notable impact. Countries may strengthen economic blocs with reliable trading partners. This could potentially divide the global economy into U.S.-centered, China-centered, and other blocs.

Finally, there are concerns about the weakening of multilateral trade systems. The authority and influence of international trade organizations like the WTO may weaken, and bilateral negotiations or power dynamics between countries may become more important. This could create an unfavorable trade environment, especially for smaller countries.