Trump Tariffs Impact... Bank of Korea: "Inflation Rate Could Drop by Up to 0.12%p if Low-Priced Chinese Manufactured Goods Flow into Korea"

If U.S.-China Mutual Tariff Rate Reaches 30%
U.S. Imports from China Could Drop by Up to 57%, Korea’s Imports Rise by 3.5%
Increased Possibility of Low-Priced Exports... Potential Decline in Korea’s Inflation Rate

An analysis has found that if low-priced Chinese manufactured goods flow into the domestic market due to U.S. tariffs, South Korea's inflation rate could be pulled down by up to 0.12 percentage points.

On August 28, the Bank of Korea announced this in its "August Economic Outlook," citing the report "Impact of China's Export Diversion on Korea's Imports from China and Inflation."

Taking into account the expected U.S. tariff rates by item and tariff elasticity, the Bank of Korea estimated the impact of tariff increases on imports. If the mutual tariff rate between the U.S. and China is 30%, U.S. imports from China are projected to decrease by between 24.7% and up to 56.9%. Assuming that the reduced exports to the U.S. are redirected to other trading partners such as South Korea, South Korea's imports from China are expected to increase by between 1.5% and up to 3.5%.

With limited room for domestic demand growth in China, the excess supply resulting from decreased exports to the U.S. increases the likelihood that Chinese manufactured goods will be exported at low prices to countries such as South Korea and others. The Bank of Korea expects that the inflow of low-priced Chinese products into the domestic market will lead to a decline in South Korea's import prices, and, with a time lag, exert additional downward pressure on consumer prices.

Estimating the magnitude of the impact on prices, if South Korea's imports from China increase by 1.5% to 3.5% due to export diversion, the import price inflation rate for manufactured goods would decrease by 0.7 to 1.6 percentage points, and the overall consumer price inflation rate would fall by 0.05 to 0.12 percentage points.

The Bank of Korea analyzed, "The impact of increased imports of Chinese products on import prices is concentrated in the short term," adding, "The effect on consumer prices is likely to persist significantly, with a time lag of up to one year."