How Will Uncertain US Trade Policy Impact South Korea's Growth?
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Synopsis
As South Korea braces for economic challenges, the uncertainty of U.S. trade policy looms large. The Bank of Korea projects a potential decline in growth by 0.13 percentage points this year. The implications of this trade landscape could reverberate through 2025 and beyond, making it essential for South Korea to navigate these waters carefully.
Key Takeaways
- Trade policy uncertainty from the U.S. could reduce South Korea's growth by 0.13 pp this year.
- An agreement was made for a 15% tariff instead of 25% in exchange for a $350 billion investment.
- Ongoing uncertainties might lead to further declines in growth in the coming years.
- Private consumption is expected to drop due to precautionary savings.
- Close consultations with the U.S. are necessary to mitigate risks.
Seoul, Sep 1 (NationPress) The current uncertainty regarding the trade policy of the United States is projected to lower South Korea's economic growth rate by approximately 0.13 percentage points this year, as reported by the central bank on Monday.
In late July, Seoul and Washington finalized a significant agreement which involved the U.S. reducing the tariff on South Korea to 15 percent from the initially proposed 25 percent, in return for a commitment of $350 billion in investments in the U.S., according to the Yonhap news agency.
Despite this agreement, the ongoing unpredictability surrounding trade policies under the Trump administration could severely impact the South Korean economy, with potential decreases in economic growth of up to 0.13 percentage points in 2025 and 0.16 percentage points in the following year, as per the analysis from the Bank of Korea (BOK).
The anticipated economic slowdown is primarily linked to a significant drop in exports and investments, as increased uncertainty discourages companies from pursuing foreign market opportunities or making substantial investments.
While exports increased in the first half of the year due to preemptive actions in anticipation of potential tariff increases, they are expected to fall in the latter half because of diminished U.S. demand for imports.
Moreover, private consumption is projected to decrease as households are likely to adopt a more cautious approach to savings in light of economic uncertainties, noted the BOK.
If tariff negotiations had not reached a conclusion and uncertainty remained into next year, the economic ramifications could have been greater, potentially leading to a decline in growth by 0.17 percentage points in 2025 and 0.27 percentage points in 2026.
"Whether tariffs are imposed or not, the elevated uncertainty in U.S. trade policy following the initiation of Trump's second term could adversely affect the economy," stated a BOK official.
"It is crucial to maintain ongoing consultations with the U.S. to avoid a resurgence of trade policy uncertainty," he added.
In the most recent forecast published last week, the BOK projected the local economy to grow by 0.9 percent this year and 1.6 percent in 2026.
Point of View
It is vital to recognize that while the uncertainty surrounding U.S. trade policy poses challenges for South Korea, proactive measures and strategic consultations can help mitigate potential economic impacts. The nation's resilience will be tested, but collaboration and foresight could steer it through turbulent times.
NationPress
01/09/2025
Frequently Asked Questions
How much is the projected cut in South Korea's economic growth?
The projected cut in South Korea's economic growth due to U.S. trade policy uncertainty is approximately 0.13 percentage points this year.
What agreement was reached between Seoul and Washington?
Seoul and Washington reached an agreement where the U.S. imposed a 15 percent tariff on South Korea, down from the initially planned 25 percent, in exchange for a $350 billion investment pledge in the U.S.
What is the expected growth rate for South Korea in 2025?
The Bank of Korea estimates that ongoing uncertainty could potentially lower South Korea's economic growth rate by up to 0.13 percentage points in 2025.
What factors are contributing to the economic slowdown?
The anticipated slowdown is largely attributed to a decline in exports and investments, as heightened uncertainty discourages firms from entering foreign markets or making large-scale investments.
What is the current forecast for South Korea's economy?
The latest forecast from the Bank of Korea expects the local economy to grow by 0.9 percent this year and 1.6 percent in 2026.
