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Navigating a trade tempest: Korea’s strategic response to U.S. tariff pressure

Published: 23 Apr. 2025, 00:04

Kim Byung-yeon

The author is a chair professor of economics at Seoul National University.

The primary driver behind the United States’ push for steep import tariffs appears to be its ballooning national debt, now exceeding $36 trillion. Interest payments on that debt are projected to reach about 4 percent of GDP and nearly 20 percent of federal revenue — figures that place the United States at the top among advanced economies. These soaring costs now outpace even the country’s defense spending, placing considerable constraints on domestic policy options.

Finance Minister Choi Sang-mok walks through the departure hall of Incheon International Airport on Tuesday as he heads to Washington to attend the Korea-U.S. ″2+2″ trade meeting and the G20 Finance Ministers’ Meeting. At the airport, protesters hold placards opposing Finance Minister Choi's planned trade negotiations with the U.S., calling for the suspension of the upcoming talks. [YONHAP]

Unlike Japan, the United States cannot rely on ultralow interest rates to ease this burden, as doing so risks eroding the value of the dollar and its status as the world’s reserve currency. Meanwhile, geopolitical instability is stoking inflation driven by cost pressures, further narrowing the room for interest rate cuts. From the perspective of the Trump administration, addressing debt is imperative not only for economic stability but also to gain leverage in the ongoing competition for global supremacy with China.

Stephen Miran, chair of the Council of Economic Advisers, has provided intellectual backing to former President Donald Trump’s longstanding preference for tariffs. In a recent report, Miran argues that demand from foreign governments to hold the U.S. dollar as a reserve currency leads to an overvalued dollar. This, in turn, drives trade deficits and the hollowing out of U.S. manufacturing. He proposes a broad 10 percent tariff on all imports, a 60 percent tariff on Chinese goods, and a coordinated adjustment of exchange rates as ways to rebuild domestic industry and narrow deficits.

Critics, however, argue that the report lacks rigorous analysis and links key variables too simplistically, rendering it more ideological than scholarly. They note that reducing deficits requires domestic restraint — cutting consumption and raising taxes — yet the report places the blame entirely on perceived foreign freeriding. While China's industrial policy, including heavy subsidies and export dumping, has indeed contributed to U.S. manufacturing decline, the Trump administration’s tariffs were applied indiscriminately, affecting allies and rivals alike.

If the currently deferred tariffs are implemented in full, the economic consequences could be severe for the U.S. as well. Higher prices and weaker growth could shake investor confidence and trigger market volatility. In an election year, this may backfire against Trump and the Republican Party in the November midterms — an outcome Trump is undoubtedly aware of. As such, reciprocal tariffs may ultimately be watered down or abandoned altogether. Still, a president convinced of the economic legitimacy of his views is unlikely to retreat without extracting concessions.

This combination of pictures shows Chinese President Xi Jinping in Beijing on Feb. 6 and U.S. President Donald Trump in Washington on April 8. China announced massive retaliatory tariffs on U.S. goods, sharply escalating a trade war started by Trump and fueling fresh panic in global markets. [AFP/YONHAP]

Against this backdrop, Korea must chart a clear and strategic course in its dealings with Washington. The first principle should be strategic clarity. Korea must reaffirm its commitment to a global order rooted in democracy and market economics. This is not a partisan stance but a fundamental expression of national identity. In the long term, aligning with this framework also serves Korea’s own interests. Like navigating open seas, diplomacy requires a defined destination — without it, short-term maneuvers may steer the country into hostile waters.

The second principle is tactical flexibility. Korea should begin negotiations early but conclude them after Japan does, allowing time to observe Tokyo’s approach and results. Stephen Miran named Korea, Japan, Britain, Australia and India top priorities for trade talks. Korea’s inclusion on this list reflects its importance as both a U.S. ally and a major trading partner. Leveraging this status could reduce the risk of being sidelined and allow Korea to negotiate from a position of relevance.

Given the uncertainty surrounding Trump’s intentions, studying Japan’s negotiation strategy offers a practical advantage. Observing how Tokyo balances defense costs, investment and geopolitical considerations in talks with Washington could help Seoul craft a tailored response. If a comprehensive agreement linking trade, economic cooperation and North Korea policy is achievable, it could yield major dividends for Korea — such as expanded cooperation in high-tech manufacturing and joint deterrence against Pyongyang’s nuclear threat.

The third principle is multilateral cooperation. Korea should deepen its alignment with like-minded countries — particularly Japan, Britain and Australia — to form a united front. By sharing the burden of maintaining global order and supporting U.S. reengagement with long-term economic leadership, these nations can help steer Washington away from isolationist tendencies. This coalition could evolve into a robust economic community encompassing supply chains, key resources, advanced technologies and strategic manufacturing.

In doing so, the group can promote a rules-based economic order that mitigates the risks of major-power confrontation. In today’s volatile world, defined by U.S.-China rivalry and a breakdown of global norms, such collaboration is not merely strategic — it is essential.

U.S. President Donald Trump meets with Japanese Prime Minister Shigeru Ishiba in the Oval Office of the White House in Washington on Feb. 7, 2025. [AP/YONHAP]

Korea is more exposed to shifts in the global order than most nations, yet its domestic political discourse remains largely inward-looking. The escalating tariff standoff initiated by the United States should serve as a wake-up call. It signals a turbulent new phase in international relations — one that demands strategic foresight, tactical agility and a delicate balance between principles and pragmatism.

As the country prepares for its presidential election, the question remains: Can a leader emerge with the vision and deftness to guide Korea through these stormy waters and into a safe harbor?

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.