South Korea’s free trade agreement (FTA) with the United States may help lessen the potential effects of reciprocal tariffs imposed by the U.S. government, according to economists from major investment banks.
On March 12, the U.S. implemented tariffs on all imports of steel and aluminum, raising concerns about additional tariffs on goods from South Korea and other countries. South Korean officials have also voiced apprehension regarding potential tariffs on Chinese products, as well as on imports of automobiles and semiconductors.
Economists from Barclays and Citi highlighted that South Korea’s FTA with the U.S., which was originally signed in 2007 and revised in 2018, could help limit the impact of these tariffs. Among the top 15 trading partners of the U.S., South Korea had one of the highest tariff rates. However, most tariffs between the two countries were eliminated under the FTA.
Tariff rates on U.S. exports to South Korea and vice versa have remained extremely low, at 0.002% and 0.003%, respectively, further minimizing the potential impact on trade.
Despite global market concerns over tariffs, South Korea’s KOSPI stock index has risen by 1% this week, reaching its highest level since early November. This performance contrasts with a 0.5% decline in the broader Asian market, fueled by optimism that the local impact of tariffs might be less significant than initially feared.
Economists from Citi noted that reciprocal tariffs could potentially affect specific South Korean exports to the U.S., such as food products, but the direct impact on South Korean exports as a whole would likely be limited. Food-related exports to the U.S. accounted for only 0.3% of South Korea’s total exports in 2024.
South Korea is one of 20 countries with a comprehensive FTA with the U.S., joining nations such as Australia and Singapore. The agreement with Japan primarily focuses on critical minerals.
In response to potential tariff impacts, South Korean Acting President Choi Sang-mok announced plans to proactively support domestic firms that could be affected, as well as efforts to diversify the country’s export markets.
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