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Key Points

The United States' new trade tariffs are projected to reduce South Korea's economic growth by 0.45 percentage points in 2025, according to the Bank of Korea's latest report. The impact will be felt across multiple economic channels, with particular strain on key industries like steel, vehicles, and machinery. These tariffs, negotiated down from an initial 25% to 15%, come with a $350 billion US investment pledge. The policy is expected to create increased financial uncertainties that could dampen both domestic and international economic conditions.

Key Points: US Tariffs to Cut Korea's Economic Growth 0.45% in 2025

  • US 15% tariffs to significantly impact South Korean economic trajectory
  • Steel, vehicle, and machinery sectors most vulnerable to trade policy
  • Financial uncertainties expected to reduce investment and consumption
  • Three primary economic channels affected: trade, finance, and market uncertainty
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US tariffs to cut S. Korea's economic growth by 0.45 pp in 2025

Bank of Korea reveals Trump-era trade policy's significant economic impact, projecting reduced growth and sector-specific challenges

"The effects are expected to become more visible going forward - Bank of Korea Monetary Policy Report"

Seoul, Sep 11

The United States' trade policy is estimated to lower South Korea's economic growth rate by 0.45 percentage point this year, the central bank here said on Thursday.

After months-long negotiations, Seoul and Washington reached a crucial agreement in late July, under which the US imposes a 15 percent tariff on South Korea, down from the initially planned 25 percent, in exchange for an investment pledge of $350 billion in the US, reports Yonhap news agency.

"The impact of the U.S.' tariff policies was limited in the first half on the back of U.S. companies' inventory accumulation, pre-exports to the U.S. by other countries and shared burdens by businesses. But the effects are expected to become more visible going forward," the Bank of Korea (BOK) said its latest biannual monetary policy report.

Compared with a scenario without tariff increases, the Donald Trump administration's new policy is estimated to reduce South Korea's growth rate by 0.45 percentage point in 2025 and 0.6 percentage point in 2026, due mainly to weakened trade, financial challenges and increased uncertainties, it added.

In detail, the impact of the aggressive tariff policy will be transmitted to the Korean economy through three channels: trade, finance and uncertainty. Each is expected to reduce this year's economic growth by 0.23 percentage point, 0.09 percentage point and 0.13 percentage point, respectively, according to the report.

Rising export costs and reduced overall demand due to higher prices in the U.S. are expected to lead to a decline in exports to the U.S. Among major industries, the steel, vehicles and machinery sectors are expected to be particularly hit hard.

"From a financial perspective, U.S. tariffs could increase inflationary pressures, leading to tighter monetary policy in the U.S. This may delay improvements in both domestic and international financial conditions, negatively affecting the real economy," the report said.

"Uncertainties stemming from the tariff policy would reduce investment and consumption," it added.

- IANS

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Reader Comments

P
Priya S
The steel and auto sectors getting hit hard - reminds me of what happened with Indian steel exports. Protectionism is rising everywhere. 😟 Hope our government is preparing for similar scenarios.
M
Michael C
Interesting how they negotiated down from 25% to 15% with that $350B investment pledge. Shows trade wars are really about leverage and negotiations rather than pure economics.
A
Ananya R
The uncertainty factor reducing growth by 0.13% is something we often overlook. When businesses don't know what trade policies will be, they hold back investments. This affects jobs and growth.
S
Sarah B
While the analysis seems thorough, I wonder if they're underestimating the secondary effects. When major economies slow down, it creates ripple effects across global supply chains that affect everyone.
V
Vikram M
This is why Atmanirbhar Bharat makes sense. We need to build domestic capabilities so we're not so vulnerable to other countries' policy changes. Jai Hind! 🇮🇳

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