[The Editors' Verdict] Trade Crisis...How Should We Navigate the Coming March?

Countdown to Trump's Tariff Pressure
Reduce Uncertainty Through Quick Negotiations and Regulatory Review

The period of about a month until March has become a crucial time for the Korean economy. U.S. President Donald Trump announced the implementation of reciprocal tariffs on April 2, leaving room for negotiation in the meantime. Depending on the outcome, it is impossible to dismiss the thought that it could determine the fate of our economy for at least the next four years.

The concern arises because the items President Trump plans to impose tariffs on will have a significant impact on our economy. Korea's exports to the U.S. amounted to $128 billion last year, accounting for more than 18% of the total exports ($680 billion). The export share of automobiles, semiconductors, and pharmaceuticals to the U.S. exceeded 36% of total exports to the U.S. Although it is still early in the year, achieving this year's export target of $700 billion is expected to become increasingly difficult in inverse proportion. President Trump announced a 25% tariff on steel products and will present specific tariff plans on automobiles, semiconductors, and others next month.

During this period, we must prepare negotiation cards and engage in negotiations quickly and actively. It is necessary to recall the experience during the first term of the Trump administration. At that time, the U.S. administration raised issues with the Korean government regarding automobile safety standards, pharmaceutical procurement, and customs procedures, along with measures to correct the U.S.-Korea trade deficit. They also demanded a renegotiation of the Korea-U.S. Free Trade Agreement (FTA).

Just before the Trump administration took office in 2016, Korea's trade surplus with the U.S. reached $27.6 billion. However, our negotiation team underestimated the U.S.'s concerns about the trade deficit between the two countries. In February 2018, President Trump took measures to impose a 25% tariff on imported steel and aluminum citing national security reasons. Robert Lighthizer, who was then the U.S. Trade Representative (USTR), evaluated in his book The False Promise of Free Trade that "President Trump's measures had the greatest impact on Korea among the major steel-exporting countries to the U.S." This indicates that it was a significant blow. Subsequently, as negotiations progressed in earnest, an agreement was reached to delay the tariff-free timing for pickup trucks exported to the U.S. under the FTA, originally set to apply from 2021, by 20 years. By accepting the U.S. side's demands, Korea's trade surplus with the U.S. decreased by $6.6 billion over three years to $21 billion in 2019 after the negotiation was concluded. Only after completing the trade negotiations that "the U.S. wanted" could the "national security issues that we wanted" be brought to the bilateral negotiation table.

In retrospect, the FTA renegotiation at that time turned out to be beneficial. It is evaluated that Hyundai Motor Group was able to focus more on electric vehicle development rather than pickup trucks, which face fierce competition in the U.S. market. This helped strengthen competitiveness in eco-friendly vehicles. Although there were widespread concerns about significant damage at the time, five years later, the import-export gap between Korea and the U.S. has actually widened. Last year, Korea's trade surplus with the U.S. was $55.7 billion, more than double that of 2019. This shows that the shock can be limited to a temporary level depending on how the negotiation results are utilized.

If negotiations begin this time, the U.S. is likely to demand improvements not only in purchasing domestic products such as liquefied natural gas (LNG) but also in non-tariff barriers such as value-added tax (VAT) and regulations. The American Chamber of Commerce in Korea (AMCHAM), representing U.S. business interests, pointed out Korea's carbon emissions and chemical substance registration regulations in a report last year. Trade experts advise that this could be an opportunity to review regulations raised by companies, including environmental ones. Turning a crisis into an opportunity depends on us.