South Korean Free Trade Pact Could Limit Impact Of Reciprocal Trump Tariffs, Economists Say

SEOUL: Economists from two prominent investment banks have stated that South Korea's free trade pact with the United States may lessen its vulnerability to the reciprocal tariffs warned by U.S. President Donald Trump. On Monday, Trump enacted tariffs on all steel and aluminium imports starting March 12, and officials from South Korea have cautioned about potential risks related to tariffs on Chinese products and restrictions on car and semiconductor imports. However, since Trump also warned of retaliatory tariffs on all nations imposing duties on U.S. imports, economists from Barclays and Citi noted that South Korea’s trade agreement could mitigate their effects.

Of the top 15 trading partners of the U.S., South Korea has the second highest tariffs, following India. However, almost all of these tariffs were removed by the agreement initially signed in 2007 and updated in 2018 during Trump's initial term. "Considering these near-zero Korea-U.S. tariff rates, the effect on Korea is even less significant than we previously anticipated," stated economists from Barclays in a note. 

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They stated that tariff rates were at 0.002 per cent and 0.003 per cent for U.S. exports to South Korea and the other way around. Even with concerns about tariffs affecting global financial markets, South Korea's main index, KOSPI (.KS11), has increased by 1 per cent this week, trading near its highest point since early November.

South Korea Braces for U.S. Tariffs with Mitigation Strategies

It has surpassed a decline of 0.5 per cent in the emerging Asian market (.MIAPJ0000PUS) and opens a new tab, driven by the hope that the domestic effects of tariffs would be milder than previously anticipated. Citi's economists indicated that the United States might impose reciprocal tariffs on specific South Korean goods, including vegetables, fruits, and animal or food products. 

South Korea, U.S. trade pact mitigates tariffs.

"In this situation, the immediate adverse effect on South Korea's exports might be minimized, considering that food-related exports from Korea to the United States represent merely 0.3 per cent of Korea's overall exports or 1.5 per cent of Korea's exports to the U.S. in 2024," the economists further stated.

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South Korea is one of 20 nations possessing extensive free trade agreements with the United States. In the Asia-Pacific area, this encompasses Australia and Singapore, whereas the collaboration with Japan emphasizes essential minerals. On Wednesday, Acting President Choi Sang-mok stated that South Korea would take proactive steps to mitigate any domestic effects from U.S. tariffs by developing support initiatives for affected businesses and aiming to broaden export markets.