On September 1, data from South Korea showed that exports to the US fell in August by the most since the May 2020 pandemic hit, with major industries such as steel and secondary batteries under pressure across the board, highlight the U. S. government’s high tariff policy impact is gradually emerging. Meanwhile, South Korea’s latest purchasing managers’ Index of manufacturing activity showed a seventh consecutive month of contraction. South Korean media pointed out that although South Korea and the United States has reached a trade agreement on July 30, the United States will South Korea“Equivalent tariffs” from 25% to 15% , but some people worry that the resulting impact has only just begun. South Korea’s disagreement with the United States over a $350 billion investment commitment has also cast a shadow over future economic and trade relations.
Of the 15 main categories of exports to the United States, 11 declined
According to the“August import and export trends” report released by the Ministry of Industry, commerce and resources (hereinafter referred to as“The Ministry of Industry”) on September 1, South Korea’s exports in August totaled US $58.4 billion, up 1.3% year-on-year, three consecutive months of growth.
In the main market, South Korea’s exports to the United States because of the automobile, general machinery, steel and other major products export pressure, down 12.0% to 8.74 billion U. S. dollars. The move comes after South Korea and the US cut tariffs from 25 per cent to 15 per cent in a trade deal reached at the end of July. The agreement was due to take effect on August 7, but so far the United States has not issued a formal executive order, korean-made cars still face high tariffs of 25 percent.
The data showed a decline in 11 of South Korea’s 15 main export categories to the US. Steel fell 32.1 per cent year-on-year, making it the worst-hit sector, while ordinary machinery fell 12.8 per cent and secondary batteries 23.7 per cent. Exports of cars and auto parts subject to the 25 per cent tariff fell 3.5 per cent and 14.4 per cent, respectively.
Joongang Ilbo said South Korean exports to the US remained relatively stable in June (-0.7%) and July (1.5%) despite the tariffs. In August, for the first time in two years, South Korea’s monthly exports to the United States fell below $9 billion. Hsu Ka-lan, a trade policy officer at the Ministry of Industry, said the impact of the Donald Trump administration’s tariffs was becoming apparent over time as the previous tariff agreement and the korea-us Summit failed to immediately ease trade pressure. The report further said that if the United States continued to delay the agreement on tariffs, South Korean companies suffered losses will continue to expand.
Donald Trump’s government’s trade uncertainty will Bank of Korea GDP growth by about 0.13 percentage points this year and about 0.16 percentage points next year, according to forecasts from the central bank. On the 29th of last month, the bank of Korea forecast GDP growth of 0.9% this year. The report argues that this uncertainty not only suppresses export momentum, but also dampens confidence in the economy as a whole, which has a transmission effect on the Korean economy.
The semiconductor export environment is also deteriorating
On the other hand, semiconductor exports to the US, which are not on the US tariff list, surged 56.8 per cent to $810m last month as demand for AI infrastructure such as data centres grew. However, some analysts believe that this may be the United States before the imposition of semiconductor tariffs on enterprises to pre-stock temporary demand. Even if the US were to grant South Korean Most favoured nation in the future, tariffs on semiconductors are expected to reach at least 15 per cent and a deterioration in the export environment is inevitable.
“The boom in semiconductors will continue in the short term, but if the US starts to impose tariffs, the current export momentum is likely to slow down,” said Chang Sang-sik, director of the Institute of International Trade and Commerce at the Korea Trade Association
As tariff uncertainty and global trade risks continue to mount, the health of South Korea’s manufacturing sector has deteriorated in tandem. South Korea’s manufacturing PMI fell to 48.3 in August, the seventh consecutive month below the 50-point line that separates contraction from contraction, the data showed.
South Korea’s Ministry of Industry, trade and resources for the first time official Wen Shenhe in an interview with Yonhap TV bluntly, the future export conditions are not optimistic. A tariff shock, the spread of protectionism and a global supply glut could worsen Korea’s export environment. South Korean diplomatic sources have warned that tariffs on cars alone are already under pressure and that a crackdown on semiconductors and pharmaceuticals would be quadrupled.
$350BN of US investment commitments are stuck
At the same time, South Korea and the United States over $350 billion in investment commitments to make bilateral economic and trade relations worse. The US said it would not consider lowering tariffs until it saw concrete implementation of South Korea’s pledge to reduce tariffs by $350bn.
The The Hankyoreh said the government planned to spend $150bn on shipbuilding and the remaining $200bn on strategic industries such as semiconductors, nuclear power, batteries, biology and core minerals, and stressed that direct investment is less than 5% , most of the amount of guarantee. But the Donald Trump administration’s insistence on “Discretionary funds” amounts to an arbitrary “Blank cheque”– for the US to decide what to use — has stalled the talks.
The disagreement is also one of the reasons why the summit failed to produce an outcome document, joongang Ilbo said. The US side demanded a significant increase in the proportion of direct investment in the US $350 billion investment, and clarified how the US $350 billion investment would be implemented. It also said that if it did not accept this condition, it would not include contents such as auto tariffs in the document, as a result, the two sides failed to reach a joint statement.
In an interview with CNBC, the United States Department of Commerce even threatened that South Korean and Japanese funds would form a $900bn “National economic security fund”, for US infrastructure. The comments sparked a public backlash in South Korea, where officials said“Such a concept has never appeared in the negotiations” and saw the unilateral disclosure of US investment plans as a means of pressure.
The industry is so interconnected with many parts suppliers that even losses won’t stop production and exports immediately if a final deal is delayed, Korean auto industry officials said, the plight of South Korean cars, “The more they sell, the more they lose”, will be hard to ease. “If tariffs are delayed, the only way to deal with them is to raise export prices, which could further trigger negative impacts such as shrinking demand,” Xu said