Will US Tariffs Impact South Korea's Economic Growth by 0.45 pp in 2025?
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Synopsis
The potential impact of U.S. tariffs on South Korea's economy is significant, with estimates suggesting a 0.45 percentage point decrease in growth by 2025. This article explores the implications of this trade policy and its effects on various sectors in South Korea.
Key Takeaways
- U.S. tariffs projected to cut South Korea's growth by 0.45 pp.
- Reduction from 25% to 15% tariffs following negotiations.
- Significant impact on steel, vehicles, and machinery sectors.
- Inflationary pressures may lead to tighter U.S. monetary policy.
- Uncertainties could reduce investment and consumption.
Seoul, Sep 11 (NationPress) The trade policies of the United States are projected to decrease South Korea's economic growth rate by 0.45 percentage points in 2025, as stated by the central bank on Thursday.
After extensive discussions, Seoul and Washington finalized a significant agreement in late July, resulting in the US imposing a 15% tariff on South Korea, a reduction from the initially proposed 25%, in return for a $350 billion investment commitment in the US, according to Yonhap news agency.
"The consequences of the U.S. tariff policies were minimal during the first half of the year due to inventory accumulation by U.S. companies, pre-exports from other countries to the U.S., and shared burdens among businesses. However, the ramifications are expected to become more apparent in the future," the Bank of Korea (BOK) noted in its latest biannual monetary policy report.
In comparison to a scenario with no tariff increases, the new policy under the Donald Trump administration is anticipated to lower South Korea's growth rate by 0.45 percentage points in 2025 and 0.6 percentage points in 2026, primarily due to diminished trade, financial difficulties, and rising uncertainties.
Specifically, the impact of the stringent tariff policy will affect the Korean economy through three avenues: trade, finance, and uncertainty, each predicted to decrease this year's economic growth by 0.23, 0.09, and 0.13 percentage points, respectively, as highlighted in the report.
Increasing export costs and the drop in overall demand because of higher prices in the U.S. are likely to result in a reduction of exports to the U.S., especially in the steel, vehicles, and machinery sectors.
"From a financial standpoint, U.S. tariffs could intensify inflationary pressures, prompting tighter monetary policy in the U.S., which may hinder improvements in both domestic and international financial conditions, adversely affecting the real economy," the report elaborated.
"Uncertainties arising from the tariff policies would dampen investment and consumption," it concluded.
Point of View
It's imperative to recognize the delicate balance South Korea must maintain in response to U.S. tariff policies. While the economic forecast appears challenging, we must also consider the broader implications on international trade and cooperation. Our nation must strategically navigate these waters to foster resilience and growth.
NationPress
12/09/2025
Frequently Asked Questions
What is the expected impact of U.S. tariffs on South Korea's economy?
The U.S. tariffs are projected to reduce South Korea's economic growth rate by 0.45 percentage points in 2025, primarily due to weakened trade and increased uncertainties.
How do tariffs affect trade between the U.S. and South Korea?
Tariffs increase export costs and reduce demand, leading to a decline in exports, especially in key sectors like steel and automotive.
What are the channels through which tariffs impact the economy?
The impact is transmitted through trade, finance, and uncertainty, each contributing to reduced economic growth.
What sectors are most affected by U.S. tariffs?
The steel, vehicles, and machinery sectors are expected to experience significant declines due to the tariffs.
What could be the broader implications of U.S. tariffs on the global economy?
U.S. tariffs could lead to increased inflationary pressures and tighter monetary policies, affecting both domestic and international financial conditions.
