[Journalism Internship] Reliant on exports, Korea braces for ‘Trumponomics’

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[Journalism Internship] Reliant on exports, Korea braces for ‘Trumponomics’

Published: 27 Nov. 2024, 18:08 Updated: 28 Nov. 2024, 13:07

U.S. President-elect Donald Trump speaks during an interview with Bloomberg News Editor-in-Chief John Micklethwait during an event with the Economic Club of Chicago on Oct. 15. [JOONGANG ILBO]

Following U.S President-elect Donald Trump's election victory on Nov. 5, the future of Korea's exports is at stake.

For his second term, Trump has proposed a new policy to increase tariffs by 10 percent on imports, particularly automobiles, while seeking to eliminate the trade deficit, according to a Reuters report. Though his plan would generate revenue for the U.S. government and protect domestic industries, it would put critical pressure on Korea’s export-oriented economy dominated by automobiles and semiconductors.

“To me, the most beautiful word in the dictionary is ‘tariff,’” Trump told an audience of 600 business executives and the press in a basement ballroom at the Economic Club of Chicago on Oct. 15.

Tariffs are beneficial for the U.S. as they reduce demand for imports, ideally spurring domestic production to fill the vacuum.

As Trump returns to the White House, Korea’s auto industry and economic experts are assessing the potential impacts. With significant reliance on the United States as a major export market, Korean automakers including Hyundai Motor and Kia may find themselves vulnerable if Trump intensifies protectionist trade policies, especially those targeting foreign manufacturing.

“Korea’s economy, especially its auto sector, is quite dependent on exports to the United States, one of our largest markets.” said Kang Sung-jin, an economics professor at Korea University. In 2022 alone, over a quarter of Korea’s exports were U.S.-bound, amounting to billions of dollars of revenue.

Table showing machinery and transportation equipment as Korea’s main exports into the United States 2021. [US DEPARTMENT OF COMMERCE]

Trump’s policies

Major exports that are key to Korea's economic success including the auto industry are expected to experience several negative impacts from Trump’s aim to implement tariffs, part of which is often referred to by experts and economists as “Trumponomics 2.0.”

Trump’s tenure from 2017 to 2021 brought sweeping trade reforms that prioritized U.S. production. His policies, rooted in the slogan “America First,” often clashed with Korea's export-oriented economy.

In 2018 the United States invoked section 232 of the Trade Expansion Act, allowing the government to impose tariffs on imported steel and aluminum. While Korea negotiated certain exemptions, the case shows the vulnerability of its industries to sudden policy shifts. Korean automakers also faced the threat of tariffs on all imported cars, playing a part in prices increases that reduced competitiveness in the U.S. market.

Trump has indicated that he may continue focusing on trade protectionism, specifically mentioning tariffs and incentives for U.S. manufacturing.

U.S. President-elect Donald Trump speaks in Florida during election night on Nov. 5. [YONHAP]

The expected tariffs range from 10 percent to 20 percent for most countries’ exports, while as much as 60 percent is to be applied to products from China. There is a growing concern in Korea that the beneficial policies implemented by the previous U.S. president, Joe Biden, will have to be re-established with Trump’s new policies, pressing Korea’s automobile and semiconductor market to a great extent.

“Trump has vowed to revisit current President Joe Biden’s signature policies like the Inflation Reduction Act and the CHIPS and Science Act — which can baffle Korean companies that have invested billions of dollars in the country to take advantage of the incentives specified in the two acts,” according to an earlier Korea JoongAng Daily article.

“While there is still room for potential economic benefits, Trump's policies have “traditionally aimed at prioritizing U.S. businesses,” Prof. Kang said. “[The world] can expect similar initiatives that can [negatively] impact Korea's economy, especially in industries such as automotive and steel.”

The new policies’ effects on Korea’s economy

The Korea Institute for International Economic Policy projected that with the tariffs, Korea’s exports will fluctuate by an estimated $44.8 billion. This would cause a severe decline in the country's GDP, ultimately contracting the economy by 0.67 percent.

Korea’s minister of finance and economy, Choi Sang-mok, shared concerns about the instability of the Korean economy on Nov. 7. "If the policy stance stressed by Trump is implemented, it is expected to have a considerable impact on our economy. The government will respond preemptively and thoroughly."

“Such a wholesale use of tariffs would bring down the global trade volume and shrink investment," said Joo Won, a researcher at Hyundai Research Institute, to Yonhap News. This would impede Korea's plans for a 2.6 percent economic growth rate compared to the now-anticipated 2.2 percent growth this year.

The Korean currency dipped to 1,400 won to the dollar on Nov. 6, influenced by Trump's election victory; however, according to the Bank of Korea, the diminished value of the won will only temporarily impact exports.

The president-elect’s intention to pursue a 60 percent tariff on Chinese products in contrast to the tariff on goods imported from other countries is expected to benefit the semiconductor industry by reducing the Chinese position, allowing Korea to engage in a less competitive semiconductor market, as reported by CNBC.

Finance Minister Choi Sang-mok, who doubles as the deputy prime minister for economic affairs, speaks on the “considerable impact” Trump’s tariff policy will have in a meeting with experts in Seoul on Nov. 11 [YONHAP]

Cars, ships and chips

Due to increased prices, top carmakers such as Hyundai Motor and Kia Motors are likely to suffer as profit could drop by as much as 20 percent the following year compared to the previous year, according to an analysis by Maeil Business Newspaper.

Thousands of brand-new cars in Korean ports wait to be shipped, showing its flourishing automobile industry. [YONHAP]

The high universal tariffs expected to be enforced during Trump’s second term are likely to affect several major global trade industries, including Korea’s semiconductor and shipbuilding industries.

As higher tariffs will be enforced on Korea’s exports to the United States, the cost of these products will also rise, meaning fewer consumers will be willing to buy Korean products. Even though Korea has among the most advanced semiconductor and shipbuilding industries, its companies could face unnecessary challenges in marketing their products compared to U.S. companies.

In the semiconductor industry, major companies like Samsung Electronics and SK hynix heavily depend on the United States and would be affected more severely than others. The country was Korea’s third-largest semiconductor export market, rising 188.3 percent to reach a total value of $2.1 billion in March over the same month last year. With Trump's tariff hike on China making chip manufacturing there a risky move, Korea's globally used semiconductor technology will suffer in providing its products to all its customers, including the United States.

Korea’s shipbuilding industry could also struggle due to Trump’s proposed policies, as steel and aluminum, key materials in ship construction, will be more expensive to import. Korea is one of the major providers of commercial and military ships to the world, especially to the United States, with $195.13 billion in ships and boats exported in 2022.

However, due to the rising cost of steel, the Korean shipbuilding industry has been losing to U.S. shipyards. Hyundai Heavy Industries and Samsung Heavy Industries began struggling to find alternative materials for their orders two days after Trump’s re-election on Nov. 5, and these firms’ efficiency also contracted along with the shrinking amount of their original material used. As the entire manufacturing process slowed, so did the deliveries, resulting in significant losses for the firms.

Korea is exploring strategies for Trump’s tariff policies

With such uncertainties, Korea's Ministry of Trade, Industry, and Energy is currently exploring strategies to mitigate the potential risks of U.S. protectionist measures. Diversifying trade partners, strengthening local manufacturing, and negotiating comprehensive trade agreements are among the tactics under consideration, according to the finance minister during the meeting of economy-related ministers. These preparations could lessen Korea’s dependence on U.S. trade and its exposure to volatility in U.S. policy shifts.

Prof. Kang said that potential opportunities could arise, such as economic benefits, particularly if Trump’s policies lead to stronger global demand or open niches in other markets.

He stated that although Trump’s policy will affect global markets, Korea’s domestic market may be comparatively less affected than other nations because of a Free Trade Agreement (FTA) between Seoul and Washington. Kang believes Trump will not be able to increase tariffs by 60 percent as he initially proposed. Under an FTA, the trade between member nations will be loosened by removing various trade restrictions, including tariffs. This agreement hinders Trump’s ability to enforce extremely disadvantageous tariffs on Korea’s exports to the United States, lessening the policy's impact.

Korea might also benefit from additional tariffs on U.S. imports. As stated in the September presidential debate, Trump believes his new tariff policies will extract money from rival nations like China. If this is the case, exports from China to the United States would lessen, creating more room for Korean exports.

BY HAN JANE, SONG SEOYOUNG (HAILEY), WOO SANGJUN (EDWARD), YU GENE