South Korea braces for US tariffs impact

South Korea's economy faces mounting pressure as US President Donald Trump prepares to impose higher tariffs, with potential levies on automobiles and semiconductors a key concern for Seoul, experts say.

Targeting key sectors such as semiconductors could backfire on the United States, they said.

Imposing tariffs on semiconductors would be "an act of self-sabotage" for the US because South Korea has alternative export markets, and the US relies on imports from South Korea, said Kim Heungchong, former president of the Korea Institute for International Economic Policy.

"It would amount to the US shooting itself in the foot," Kim told China Daily.

Trump has imposed new tariffs on all imported steel and aluminum products this month. He has said that next month he will announce reciprocal tariffs to be imposed on all imports and additional tariffs on automobiles, semiconductors and pharmaceuticals — major export items for South Korea.

In a cabinet meeting on March 11, South Korea's acting president Choi Sang-mok said the US has now begun to zero in on Asia's fourth-largest economy.

The country is preparing a list of items that can be imported from the US for tariff negotiations, Yonhap News Agency reported on Wednesday.

Though the South Korea-US free trade agreement may limit new tariffs, high tariffs on South Korea's main export items such as automobiles will inevitably have some impact, Kim Heung-chong said.

"Countries with high export volumes to the US are expected to face similar tariff rates, meaning that significant changes in competitiveness within the US import car market are unlikely. However, the price competitiveness of South Korean vehicles may decline relative to those manufactured in the US."

Oh Joon-seok, dean of the College of Economics and Business at Sookmyung Women's University in Seoul, told China Daily that South Korean companies are likely to face trade barriers through anti-dumping and countervailing duty more frequently than ever.

South Korea faces the challenge of developing a new trade relationship with China, its largest trading partner, due to the domestic political vacuum and the US push for South Korean companies to invest and create jobs in the US, Oh said.

Within the supply chain of the Regional Comprehensive Economic Partnership, of which both China and South Korea are members, Oh said South Korea focuses on trade logistics collaboration with China to strengthen economic partnerships and trade competitiveness.

South Korea must wait before political stability for charting new trade policies and then focus on diversifying export markets, Oh said, securing resources and leveraging foreign direct investment in the Association of Southeast Asian Nations and tapping opportunities through the Asia-Pacific Economic Cooperation forum and the RCEP frameworks.

Large surplus

Though there are almost no US products on which South Korea "unfairly" imposes tariffs because the two sides' free trade agreement covers more than 99 percent of trade goods, South Korea posted a record $55.7 billion trade surplus with the US last year, which could be seen by the US as "unfair trade practices", said Kim Tae-hwang, a professor of international business and trade at Myongji University in Seoul.

South Korea needs to increase communication and negotiation with the US because the so-called America First policy is a unilateral demand of the US, and the response to its demand for opening the agricultural and livestock products market is a highly sensitive issue, Kim Tae-hwang said.

Concerns were also expressed over the potential increase of the defense cost-sharing of maintaining US troops in South Korea.

During the presidential campaign last year Trump demanded that South Korea should pay $10 billion a year for 28,500 US troops to be stationed there, 10 times the amount paid now.

South Korea's fiscal deficit has worsened over the past 10 years, Kim Tae-hwang told China Daily, adding that increasing defense cost-sharing could put extra strain on the country's budget.

"If the defense budget increases rapidly, the budget for the economic and welfare sectors will have to be reduced, so (South) Korea … may experience a long-term economic recession."

Kim Heung-chong, former president of the Korea Institute for International Economic Policy, said he expects the adjustment will be mutually agreeable after negotiations as the $10 billion defense cost is excessive to an extreme degree considering South Korea's defense budget for last year was less than $45 billion.

This is because the primary function of US troops in South Korea has shifted to serving as a strategic outpost for the US military presence in Northeast Asia from looking after South Korea's security concerns on the Korean Peninsula, he said.

Domestic policies should focus on strengthening South Korea's advantages in technology to serve as a foundation for effective negotiations with the US, Kim Heungchong said.

kelly@chinadailyapac.com