Tariff Retaliation, a Nuclear Bomb-Level Threat to China... Trump Disaster That Could Collapse the Global Economy [Global Focus]

[Trump Risk①]
Trump's Agenda 47 Pledge Signals Introduction of Reciprocal Trade Act
Universal Tariff Increased by 10%P for All Countries, 60% Ultra-High Tariff on China
Semiconductor and AI Supply Chain Isolation Expected to Accelerate
Global Growth Rate Feared to Decline by 1% Annually
Korean Economy on Alert as Trade Surplus with US Expands

‘Tariff’ mentioned 82 times, ‘China’ mentioned 150 times.

These are the number of times former U.S. President Donald Trump mentioned tariffs and China in his campaign manifesto, ‘Agenda 47.’ With Trump, who predicted much stronger protectionism and a U.S.-China trade war than during his first term, confirmed as the Republican candidate for the upcoming November U.S. presidential election, the ‘Trump risk’ is spreading across all fronts. Concerns are even emerging that international trade will shrink due to the U.S.’s ‘tariff bombs’ and retaliatory tariffs from China, the European Union (EU), and others, potentially reducing global economic growth (GDP) by 1% annually. As protectionist policies and trade conflicts spread uncontrollably worldwide, significant aftershocks are expected for the global economy, including South Korea, which relies heavily on trade.

Trump Announces Introduction of Reciprocal Trade Act... "Global GDP to Decrease by 1%"

According to former President Trump’s campaign manifesto ‘Agenda 47’ released on the 19th, the top priority trade policy for a second Trump term is summarized as tariff increases. Trump proposed the introduction of the ‘Reciprocal Trade Act’ as one of the means to raise tariffs. The core of this law is that the U.S. would impose the same tariff rates on imported goods from abroad as foreign countries impose on U.S. exports. If country A imposes higher tariffs than the U.S., the U.S. would correspondingly raise its tariffs, and if country B lowers tariffs, the president would have the authority to lower U.S. tariffs to the same level. Currently, the authority to raise or lower tariffs in the U.S. lies with Congress.

One reason Trump announced the introduction of the Reciprocal Trade Act is the relatively low U.S. tariff rates compared to other countries. According to the manifesto, the global average tariff rate is more than twice that of the U.S. For food products such as grains, the U.S. tariff rate is 3.1%, while India’s is 32.9% and China’s is 19.5%, much higher. For transportation equipment, the U.S. tariff rate is 2.9%, whereas India applies 25.3%. Trump argues that such tariff rate differences undermine the competitiveness of U.S. companies and lead to manufacturing relocation and job losses within the U.S.

Trump also stated that a universal basic tariff of an additional 10 percentage points would be applied to all countries, and ultra-high tariffs exceeding 60% would be imposed on China. He also announced tariffs on countries manipulating exchange rates that worsen the U.S. trade deficit. Allianz Research analyzed that if Trump fully implements his campaign promises after election, the effective U.S. tariff rate would rise to 12%, the highest level since the 1940s. According to Oxford Economics and Allianz Research, such trade conflicts and trade contraction are expected to reduce the GDP of the U.S. and the world by up to 1.4 percentage points and 0.6 percentage points respectively in the first year. Global GDP is estimated to decrease by 0.9% in 2026 and 1% in 2027.

U.S. Trade Deficit with China Exceeds 2 Quadrillion Won... U.S.-China Decoupling Deepens

If a second Trump term becomes reality, China, the biggest competitor, is expected to be the primary target. The cumulative U.S. trade deficit with China is estimated at $17 trillion (approximately 2.26 quadrillion won) since China joined the World Trade Organization (WTO) in 2000. Trump announced plans to raise tariffs on China to over 60% and revoke China’s Most Favored Nation (MFN) status granted upon its WTO accession. Experts predict that if the U.S. withdraws MFN status, China’s average export tariff rate to the U.S. would jump from single digits to 30-40%. Additionally, Trump threatened to impose a 100% tariff on Chinese-made cars entering the U.S. through Mexican factories to block circumvention routes.

The imposition of ultra-high tariffs will inevitably reduce U.S.-China trade. Bloomberg Economics (BE), an economic research institute under Bloomberg, estimates that if the U.S. raises tariffs on China to 60%, the share of Chinese products in total U.S. imports will plummet from 14% in 2023 to 1% in 2030. Even if tariffs remain at the current average rate of 12%, the share of Chinese imports is expected to fall to 10% by 2030. Before the U.S.-China trade war in 2018, this share was as high as 22%. Furthermore, the Biden administration’s efforts to isolate China from advanced technology supply chains such as semiconductors and artificial intelligence (AI) are expected to accelerate. This raises concerns that it could be a disaster for both the U.S. and Chinese economies. Inflation is soaring in the U.S., and trade conflicts are expected to weaken the competitiveness of U.S. products and reduce employment. China will also inevitably suffer. Allianz Research estimates that if Trump’s campaign promises are fully implemented, China’s GDP will decrease by 0.5% in 2025, 1.1% in 2026, and 1.4% in 2027. Nobel laureate economist Paul Krugman of the City University of New York criticized Trump’s promises, saying, “Tariffs do not eliminate trade deficits unless they are raised to levels that make trade impossible,” and warned that Trump’s policies could signal the U.S. giving up its role as a global economic leader rather than benefiting the U.S. economy.

‘Rising Trade Surplus with the U.S.’ Poses Emergency for South Korean Economy

South Korea’s economy, which depends on trade, is unlikely to avoid aftershocks if a second Trump term, characterized by strong protectionism, begins. South Korea was the first in the world to be asked to renegotiate its Free Trade Agreement (FTA) shortly after Trump’s first term began in 2017 and faced restrictions on steel exports to the U.S. under Section 232. Recently, South Korea’s trade surplus with the U.S. has increased, making it highly likely that South Korea will have to return to the negotiating table with the U.S. after Trump’s election, who is sensitive to trade deficits. South Korea’s trade surplus with the U.S. reached a record high of $44.5 billion in 2023, more than triple the $13.8 billion recorded five years earlier in 2018.

Moreover, Trump’s pledge to repeal the Inflation Reduction Act (IRA) is expected to impact South Korean electric vehicle battery manufacturers operating in the U.S. If Trump withdraws subsidies for electric vehicles, sales in the U.S. will inevitably decline. The U.S.-China decoupling and the resulting pressure to move away from China are also burdensome factors for the South Korean economy. Since South Korea exports intermediate goods to China, which then processes and exports them to the U.S., a reduction in U.S.-China trade is expected to significantly impact South Korea’s economy as well.