South Korea on Monday, January 20, pledged to set aside a record amount of financial support for exporters to mitigate any potential consequences of a likely change in United States trade policy after the inauguration of Donald Trump.
The finance ministry of the mentioned country has released a statement that contains information about the intention of the government to provide policy financing to domestic companies shipping their products abroad in the amount of 360 trillion won ($247.74 billion) through state-run banks and institutions in the current year.
It is worth noting that during the election campaign, the President of the United States, Donald Trump, repeatedly stated his intention to tighten Washington’s trade policy. In this case, it implies plans to increase tariffs on imported goods. The relevant measures are expected to largely affect China, which is currently the main geopolitical rival of the United States. At the same time, there is information according to which Washington’s tightening trade policy may also affect its allies, including Brussels, Tokyo, and Seoul. So far, Donald Trump’s intentions are theoretical plans, not actions implemented on a practical plane. Some experts admit the possibility that the tariff threat will either be used as a negotiating tool or will materialize in part relative to the initially announced plans. The increase in tariffs, according to most experts, will provoke an increase in tensions in the global trade space. For many countries, the implementation of Donald Trump’s intention to do so will have painful consequences, especially for those states which economies rely heavily on exports. Against the background of the corresponding probability, Seoul is included in the list of world capitals that may face negative sensitive ramifications.
South Korea’s finance ministry has expressed concerns that external uncertainty will increase under Mr. Trump’s administration. It was also noted that this factor will have a negative impact on exports.
Moreover, South Korea’s finance ministry said it will boost insurance support to guard against foreign exchange volatility to 1.4 trillion won in 2025 from 1.2 trillion won last year. Spending on government projects such as trade fairs and delegations will also be increased from 2.1 trillion won to 2.9 trillion won.
Furthermore, South Korea’s finance ministry noted that the sectors that are particularly threatened by the expected tightening of the United States trade policy are semiconductors and rechargeable batteries. It was also highlighted that defense, nuclear energy, and shipbuilding areas have more favorable prospects because of the room for cooperation with the US.
After winning the November United States presidential election, Donald Trump has pledged to impose stiff tariffs on goods imported from Canada, Mexico, and China. It is expected that the implementation of appropriate measures will affect South Korean companies that run factories in the mentioned countries.
Economists warn that there are concerns that Washington will impose harsh tariffs on Seoul. According to them, the probability of a corresponding decision by the President of the United States is high, given that South Korea, which has the fourth largest economy in Asia, earned a record-high surplus of $55.7 billion in trade with the US last year. This indicator increased by 25.4% year-on-year.
The Korea International Trade Association, South Korea’s biggest group of exporting companies, predicts a slowdown in the growth of external shipments to 1.8% in 2025. Last year, the country’s exports increased by 8.1%, reaching a record high of $683.7 billion. Sales of South Korean products to the United States grew by 10.4% in 2024.
Seoul currently fears the scaling up of protectionism at the global level. It is worth noting that the formation of such a the condition of world’s economic environment is a realistic prospect against the background of the currently observed increase in geopolitical tensions. South Korea’s economy relies heavily on exports, which is why limiting the ability to benefit revenue from global trade operations will have severe consequences.
It’s worth noting that Seoul is currently facing internal challenges that may have negative economic implications. On Monday, the Bank of Korea said it may revise down its outlook for the country’s economic growth. The financial regulator noted that circumstances such as the political crisis related to the suspended President Yoon Suk Yeol and weak domestic demand may be the reason for the mentioned actions.
In November, the Bank of Korea predicted that the country’s economy would grow by 1.9% in 2025. In January, the financial regulator is considering the possibility of decreasing this indicator to 1.6-1.7%. The report from the Bank of Korea noted that the political uncertainty associated with the imposition of martial law in December and the subsequent impact on economic sentiment would probably cause the mentioned forecast to fall by about 0.2%. The financial regulator intends to officially announce a revision of the projection next month.
The Bank of Korea report noted that the February figure will depend on the timing of easing political uncertainty, government support measures, and the economic course of the Donald Trump administration.
In a sense, Seoul found itself in a situation that can be described as between two fires. In this case, the situation is understood as a set of factors that affect the condition of the economic system of South Korea and the prospects for its further dynamic. The internal state of affairs in the country is characterized by a lack of stability, while the external environment is saturated with uncertainty.
The potential growth rate of South Korea’s gross domestic product (GDP) is 2%. However, there is a possibility that the final indicator will be lower than the mentioned figure. If the negative scenario is implemented, South Korea’s GDP growth will be less than 2% for the first time ever.
Last month, the National Assembly voted to impeach Yoon Suk Yeol pending a final court ruling on his imposition of martial law. On Saturday, January 18, he was formally arrested. Political turbulence, which means a lack of stability, is a state of affairs that, in principle, cannot generate positive conditions for the economy, including in the context of prospects of its growth.
Last week, South Korea’s acting president Choi Sang-mok said that the administration of Donald Trump is expected to have a significant impact on the country’s economic system, calling on all stakeholders to coordinate efforts. In this context, he noted the importance of combining the efforts of the government, businesses, and other organizations related to the economy. Choi Sang-mok also called for close cooperation with the parliament amid ongoing political turmoil.
Certain measures will likely allow Seoul to mitigate or reduce the negative impact of a potential tightening of Washington’s tariff policy, but it will not be possible to completely avoid any negative consequences in this case. The United States is a very important trading partner of South Korea, which is why any measures taken by the US will be a sensitive factor
As we have reported earlier, South Korea Factory Output Falls.
