The impact of Trump's tariffs for Korea

             
South Korea's Trade Outlook Amid Growing Concerns Over Global Commerce

South Korea's early trade data for November signals a positive trend, with exports increasing by 5.8% in the first 20 days of the month, according to figures released by the country's customs office on November 21. This represents a strong rebound compared to the 0.2% decline reported for the full month of October. Despite global economic uncertainties, this early growth is seen as a hopeful sign for the country's trade-reliant economy.

Concerns Over the US Trade Policies

South Korea, like many of the world’s largest exporting nations, faces looming challenges on the trade front, particularly in light of the US elections earlier this month. Donald Trump’s return to the White House brings with it the possibility of a new wave of protectionist policies. Trump has pledged to impose universal tariffs, with a focus on China—South Korea’s largest trading partner. This could significantly disrupt trade flows, particularly for countries like South Korea that are heavily reliant on exports.

Potential Impact of US Tariffs

As one of the top 10 nations running a trade surplus with the US, South Korea is likely to be a primary target for Trump’s trade policies. Bloomberg Economics warns that if Trump enacts his proposed tariffs fully, South Korea’s exports to the US could plummet by as much as 55% by 2028. Additionally, subsidies provided to South Korean companies operating factories in the US may be at risk of cancellation, which could further impact South Korean exports and investments in the US.

Economic Impact and Challenges

The potential for heightened trade tensions and the implementation of tariffs creates significant uncertainty for South Korea's economic outlook. Some economists are moderating their optimism about the country’s growth prospects. The International Monetary Fund (IMF) has raised concerns about downside risks to South Korean growth, with IMF Korea mission chief Rahul Anand stating that the risks are tilted toward negative outcomes.

Furthermore, economists from Morgan Stanley predict that disruptions in global supply chains, particularly from protectionist policies, would slow down corporate investment and economic momentum. "Supply chains would face significant rewiring pressures, and the disruption faced by the corporate sector would meaningfully slow the capex cycle," said Chetan Ahya and his team. Such disruptions could hurt trade-dependent economies like South Korea, leading to decelerated growth in the region.

Monetary Policy Adjustments

To mitigate these risks, South Korea's central bank may be forced to cut interest rates several times. Bloomberg suggests that the bank could reduce its key interest rate as many as five times by early 2026 to support economic growth. However, the effectiveness of such measures in the face of global trade uncertainties remains uncertain.

Key Trade Figures

Korea has a trade surplus of $798 million, as overall imports declined by 1%. The increase in exports, coupled with a slight reduction in imports, points to a healthy balance of trade, which did not appear to be distorted by differences in working days during the month. These figures are encouraging, yet the future remains uncertain due to shifting global dynamics.

Conclusion

While South Korea's early trade figures for November offer a positive sign for its economy, the looming trade tensions, particularly with the US under a potentially protectionist Trump administration, could pose significant risks to future growth. The country’s reliance on exports, especially to the US and China, makes it vulnerable to changes in global trade policies. Policymakers and economists will need to carefully monitor these developments, as the economic landscape in the coming years could be defined by trade disruptions, shifting supply chains, and evolving geopolitical dynamics.