[Econ & Biz] Tariff shock: S. Korea grapples with steep reciprocal tariffs and auto export levies

For a closer look on what these new major U.S. tariffs mean for the local economy, our trade correspondent Moon Hye-ryeon joins us in the studio.

Hye-ryeon, some 60 countries were included on the list.

Give us some context as to how high the levies are for South Korea?

Sure. In addition to the baseline tariff of 10 percent that applies to all countries, South Korea is being levied an extra 16 percent as one of Washington's listed "worst offenders" on trade – bringing the total to 26 percent.

To put this into context, this is notably higher than what many analysts had anticipated, especially given the existing Free Trade Agreement between the two countries.

The rate surpasses the tariffs applied to other U.S. allies, such as the European Union and Japan, making it the highest among Washington's FTA partners.

Experts say that this comes as a result of a high trade deficit and South Korea's tariffs on U.S. agricultural goods.

"The U.S. appears to be focusing on the agricultural sector because it has a high volume of agricultural exports. Also, South Korea's trade surplus with the U.S. was originally below 50 to 60 billion dollars. If a trade deficit with a specific country rapidly increases over a few years, U.S. federal law requires an investigation, and appropriate measures can be taken in response."

Other than the reciprocal tariffs that will be applied within the next few days, 25 percent tariffs on all vehicles shipped to the U.S. took effect starting at midnight in Washington and 1 PM in Seoul.

This auto tariff rate is consistent across all countries, so South Korea is not being singled out in this sector.

What has been the response from the authorities thus far?

Following the announcement, a series of high-level meetings were convened between government officials and industry leaders.

Prime Minister Han Duck-soo was the first to respond, calling an emergency meeting to conduct a thorough analysis of the newly announced tariffs and their potential impact.

He also emphasized the importance of negotiations with Washington to minimize economic damage.

The government then held a macroeconomic policy meeting, presided over by Finance Minister Choi Sang-mok, to assess market reactions and pledge all necessary measures to stabilize any excessive volatility as the benchmark KOSPI began trading more than 2.7 percent down from the previous session.

Targeted support for industries most vulnerable to the tariffs was also outlined.

"We will sequentially announce detailed support measures to counter tariffs, including support for industries expected to be affected such as automobiles, and the expansion of refund guarantees for shipbuilding."

Meanwhile, industry leaders, government officials, and economic organizations gathered for further discussions on the potential impact on South Korean businesses.

With the presidential impeachment verdict set for tomorrow, concerns have emerged over the absence of strong leadership to spearhead negotiations, raising uncertainty about the government's ability to navigate the crisis effectively.

Which industries could suffer the most?

Although auto tariffs are spared extra reciprocal tariffs, with around half of South Korea's exports to the U.S. reliant on auto shipments, these levies are expected to hit hard.

Here's what an expert said.

"Half of all cars exported abroad are shipped to the U.S., meaning Hyundai and Kia will take the biggest hit. In particular, Korea's GM branch, which sends roughly 85 percent of its vehicles to the U.S., is likely to suffer a direct blow."

And it's not just vehicles but levies on auto parts, too, that could lead to higher costs for domestic automakers.

With the Trump administration also preparing to implement levies on other goods including semiconductors, this could also be a cause for concern.

"Many big tech companies, including Apple, as well as South Korean firms, have extensive production facilities in China, Vietnam, India, Malaysia, and Indonesia. Because of this, shifting supply chains in the short term is not easy. If the overall scale of ICT product exports to the U.S. shrinks even slightly, South Korea's semiconductor industry may also see a decline in exports."

With pressure mounting on the South Korean government to strike a deal to secure a deal or risk a further slowdown in its manufacturing sector, a shift in strategy from pledging investments in the U.S. is needed.

Alright, thank you for your report, Hye-ryeon.

Thanks for having me.