[Initial Insight] 'America First' and the Survival Path of the Korean Economy

Mexico and Canada Tariff Bomb Signal
Impact on Samsung, LG, and Others with Production Bases
Must Use as an Opportunity to Advance Industrial Structure

Donald Trump, the President-elect of the United States, is bringing his ‘America First’ policy back into reality. The core of his policy is simple. If the United States does not gain direct and immediate benefits, even long-standing alliances become meaningless. This is a hardline policy that prioritizes national interests over alliances and cooperation, signaling significant changes in the international economic and trade order.

Kwangho Lee, Head of the Industrial IT Department, Corporate Team

During his previous term, Trump implemented a ‘tariff bomb’ targeting major trading partners under the pretext of reducing the trade deficit. On the 25th (local time), he announced plans to impose large-scale tariffs on major importers such as Mexico, Canada, and China once again. He declared that starting from his inauguration day on January 20 next year, an additional 10% tariff would be imposed on China, and 25% tariffs would be applied to Mexico and Canada respectively through executive orders, sending a strong warning message.

This move is closely related to Mexico’s rise as the top export destination for the United States. According to Bloomberg News, Mexico exports goods worth $475.6 billion annually to the U.S., surpassing China ($427.2 billion) and Canada ($421.1 billion). South Korea ranks sixth with $116.2 billion, but it is not in a secure position amid Trump’s announcement of a ‘universal tariff (an additional 10-20% tariff on all imports) bomb.’

The U.S. tariff bomb does not merely reduce exports from other countries. It is highly likely to directly impact Korean companies such as Samsung Electronics, LG Electronics, Kia, and POSCO, which have production bases in Mexico and Canada. Especially, Korean companies exporting U.S.-made products or intermediate goods produced with Mexican and Canadian parts will find it difficult to avoid a chain reaction of damages. In the case of China, there is also a possibility that the demand for Korean intermediate goods will decrease due to reduced exports to the U.S.

Accordingly, the government has decided to expand and reorganize the Ministerial Meeting on Strengthening Industrial Competitiveness, chaired by the Deputy Prime Minister for Economy. This meeting was held until October 2022 but was suspended for the past two years; however, considering the seriousness of the situation, it has been reactivated. The Presidential Office also held an emergency meeting chaired by Policy Chief Sung Tae-yoon to start preparing countermeasures.

Trump’s tariff policy does not distinguish between allies and adversaries. South Korea should not merely worry about the damage but must proactively establish response strategies. It should actively respond by proposing ways to strengthen cooperation in key industries such as automobiles, semiconductors, defense, and shipbuilding. There is significant potential to seek opportunities through enhanced cooperation in defense, shipbuilding, and nuclear sectors, where the U.S. finds it difficult to replace supply chains.

The uncertainties of Trump’s second term pose a major challenge for both companies and the government, but they can also be turned into opportunities. South Korea should use this as a chance to diversify its trade dependence on the U.S. and to advance its industrial structure. While strengthening cooperation with the U.S. based on Korea’s globally recognized automobile, semiconductor, and defense technologies, efforts to secure independent competitiveness are crucial. Ultimately, Trump-style America First will act as both a new crisis and an opportunity for the Korean economy. Only thorough strategies and agile responses will be the key for South Korea to survive and grow amid the global trade war.