South Korea Moves to Defuse Trade Tensions with US Amid Trump's Tariff Accusations

SEOUL – South Korea is scrambling to address escalating trade tensions with the United States after President Donald Trump publicly criticized the country for allegedly imposing high tariffs on American goods. Acting President Choi Sang-mok, in a move signaling the gravity of the situation, has directed relevant ministries to engage in immediate and proactive communication with the U.S. administration to clarify South Korea's tariff policies and resolve any perceived misunderstandings.

On April 17, 2024, South Korean Finance Minister Choi Sang-mok participated in a trilateral meeting with U.S. Treasury Secretary Janet Yellen and Japanese Finance Minister Shunichi Suzuki during the IMF/G20 meetings in Washington, D.C.REUTERS/Kevin Lamarque/File Photo

The impetus for this diplomatic push stems from Trump's recent address to Congress, where he singled out South Korea, claiming its average tariff rate is four times higher than that of the United States, despite significant military and economic assistance provided by Washington. Trump's statement, coupled with his directive to his economic team to formulate reciprocal tariff plans by early April, has sent shockwaves through South Korea's business and political circles.

The finance ministry, in a statement released Monday, emphasized the acting president's instruction to "actively explain to the U.S. about any misunderstanding of our tariff rates on U.S. imports." This proactive approach underscores Seoul's determination to prevent a full-blown trade war with its key ally.

The core of the disagreement centers on the interpretation of tariff rates. While South Korea does indeed hold the second-highest average tariff rate among the top 15 U.S. trading partners after India, this figure is misleading when considering the specifics of the Korea-U.S. Free Trade Agreement (KORUS FTA). This agreement, first signed in 2007 and revised in 2018, effectively eliminates nearly all tariffs on U.S. imports into South Korea.

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According to South Korea's trade ministry, the effective tariff rate on U.S. imports as of 2024 stands at a mere 0.79%. This stark contrast between the overall average tariff rate and the effective rate on U.S. goods highlights the potential for misinterpretation and underscores the need for clear communication between the two governments.

Beyond Tariffs: Non-Tariff Barriers and Energy Cooperation:

Trump's criticism extended beyond tariffs, encompassing what he termed "non-tariff barriers." These barriers, which include regulations and other trade restrictions, are also slated for review under the acting president's directive. The South Korean government is now tasked with not only clarifying its tariff policies but also identifying and addressing any potential non-tariff measures that could be perceived as unfair or protectionist.

In a further attempt to appease Trump and foster stronger bilateral relations, Choi Sang-mok has also initiated discussions regarding enhanced cooperation in the shipbuilding and energy sectors. This initiative directly addresses Trump's comments suggesting that Japan, South Korea, and other countries are interested in partnering on a natural gas pipeline project in Alaska.

South Korea's industry ministry has expressed its willingness to actively engage in discussions regarding this project, though it has emphasized that no concrete details have been finalized. This cautious optimism reflects the delicate balancing act South Korea is undertaking: seeking to strengthen ties with the U.S. while safeguarding its own economic interests.

The situation highlights the complex and often delicate nature of international trade relations, particularly between major economic powers. South Korea's proactive response demonstrates its commitment to maintaining a strong alliance with the United States, a crucial partner in security and economic affairs. However, the uncertainty surrounding Trump's intentions and the potential for further escalations remains a significant concern.

The coming weeks will be crucial in determining the outcome of this trade dispute. The success of South Korea's diplomatic efforts will depend on its ability to effectively communicate the nuances of its trade policies, address Trump's concerns, and ultimately prevent the imposition of retaliatory tariffs that could significantly harm both economies. The global implications of this dispute are substantial, underscoring the need for a swift and mutually beneficial resolution.  majaits

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OTHER INFORMATION:

Choi Sang-Mok Photo by SCMP

President Choi Sang-mok is a South Korean politician who has served as the acting president and acting prime minister of South Korea since December 27, 2024, following the impeachment of Yoon Suk Yeol and Han Duck-soo. He has also served as the deputy prime minister and minister of economy and finance since December 2023.

Choi Sang-mok was born on June 7, 1963, in Seoul, South Korea. He graduated from Seoul National University with a law degree and a master's in public administration, and he also holds a PhD in economics from Cornell University. He has held various positions in the South Korean government, including vice minister of strategy and finance, senior secretary for economic affairs in the office of the president, and president of the agricultural cooperative college.

Choi Sang-mok became acting president after the impeachment of Han Duck-soo, who had been serving as acting president following the impeachment of Yoon Suk Yeol. He has been criticized for his role in the failed attempt to arrest Yoon Suk Yeol at his residence on January 3, 2025, with the Democratic Party accusing him of obstructing Yoon's arrest by allowing the presidential security service to block the corruption investigation office for high-ranking officials from implementing its arrest warrant on Yoon.

Choi Sang-mok is a controversial figure, but he is a powerful one. He is the acting president of South Korea and is responsible for leading the country through a period of political turmoil. It remains to be seen what his legacy will be.

South Korea's Free Trade Agreement Could Cushion Blow from Trump's Tariff Threats, Economists Say

SEOUL – The global financial markets are on edge following President Donald Trump's imposition of tariffs on steel and aluminum imports, effective March 12th. The move, coupled with Trump's threat of reciprocal tariffs against any country imposing duties on U.S. goods, has sparked widespread concern. However, economists at major investment banks Barclays and Citi believe South Korea's existing free trade agreement with the United States could significantly mitigate the potential negative impact on the Korean economy.

Trump's protectionist measures have already sent ripples through global markets, prompting anxieties about potential trade wars and economic slowdown. South Korean officials have voiced concerns about the ramifications of tariffs on Chinese goods and potential restrictions on Korean exports of cars and semiconductors. Despite these legitimate worries, the relatively calm response of the South Korean market suggests a degree of confidence in the country's ability to weather the storm.

The key factor underpinning this optimism, according to the economists, is the comprehensive free trade agreement (FTA) between South Korea and the United States, first signed in 2007 and revised in 2018. This agreement, designed to eliminate or significantly reduce tariffs on a wide range of goods, has already effectively neutralized the impact of most tariffs on bilateral trade.

Minimal Direct Impact Predicted:

Barclays economists, in a recent note, highlighted the near-zero tariff rates currently in place between the two countries. They stated that, considering these rates (0.002% on U.S. exports to South Korea and 0.003% vice versa), the actual impact of any reciprocal tariffs would be far less severe than initially feared. This assessment suggests that the threat of widespread economic disruption in South Korea may be overblown.

While acknowledging the potential for targeted reciprocal tariffs on specific South Korean goods, Citigroup economists offered a similarly reassuring outlook. They pointed out that even in a worst-case scenario involving tariffs on Korean agricultural products (vegetables, fruits, and animal-based food products), the direct impact on South Korea's exports would be relatively limited. Their analysis indicates that food-related exports to the U.S. comprise only 0.3% of South Korea's total exports and 1.5% of its exports to the U.S. specifically in 2024. This suggests that the overall economic impact would be marginal.

Strategic Advantages and Proactive Measures:

South Korea's robust FTA with the U.S. places it in a stronger position than many other countries facing similar threats. The country is one of approximately 20 nations holding comprehensive free trade pacts with the United States, including Australia and Singapore in the Asia-Pacific region. Additionally, South Korea has a separate FTA with Japan focused on critical minerals. These agreements provide a significant buffer against the potential negative effects of Trump's protectionist policies.

The South Korean government, however, is not relying solely on the FTA for protection. Acting President Choi Sang-mok announced on Wednesday a proactive strategy to mitigate any potential domestic impact. This strategy includes preparing support measures for businesses that may be affected by the tariffs and actively seeking to diversify export markets. This proactive approach demonstrates a commitment to minimizing economic disruption and maintaining stability.

Market Response and Future Outlook:

The South Korean stock market's positive performance this week, with the KOSPI index rising 1% and outperforming the broader emerging Asian market, further supports the economists' relatively optimistic assessment. This market response suggests that investors are factoring in the mitigating effects of the FTA and the government's proactive measures.

While the threat of reciprocal tariffs remains a concern, the analysis from Barclays and Citi suggests that the impact on South Korea may be less severe than initially anticipated. The country's existing free trade agreement, coupled with the government's proactive approach, positions South Korea to weather this trade storm more effectively than many other nations. However, ongoing monitoring of the situation and continued proactive measures will be crucial in navigating the uncertain landscape of global trade policy under the Trump administration. majaits