Title: Trump's Trade Dispute Roils South Korea's Economy
South Korea's economy contracts prior to tariff hikes – export figures slump
South Korean Economy Takes a Beating from the U.S.-Trump Trade War
South Korea's economy is feeling the heat of the ongoing trade spat with the U.S., led by President Donald Trump. The nation's GDP took a hit, plunging by 0.2 percent quarter-on-quarter from January to March, as per the stats office in Seoul - a surprising dip given economists' anticipation of a minor growth of 0.1 percent for Asia's fourth-largest economy.
"Industrial production was treading water in the first quarter, and consumption remained lackluster," notes Huh Jae-hywan, an analyst from Eugene Investment & Securities. "The external uncertainties coupled with a slowdown in exports have fueled the downturn." Exports dropped by 1.1 percent in the first quarter, a turnaround from a 0.8 percent growth in the last quarter of 2024.
Big-ticket companies like Samsung (electronics giant) and Hyundai-Kia (car manufacturers) call South Korea home, making them vulnerable to global tariff shenanigans. Trump announced a 25 percent tariff on auto imports and a minimum 10 percent tariff on other imports at the beginning of April. Early trade data for April reveals that South Korea's exports have plummeted by 5.2 percent in the first 20 days of the month, with exports to the U.S. diving by a whopping 14.3 percent.
This economic tumult isn't just about the trade war. South Korea is battling the worst forest fires in its history, and the political tumult following President Yoon Suk-yeol's impeachment is dampening consumer and business spirits. The investment sentiment among companies has weakened in recent months, as many are hesitant to make new investments, according to a central bank representative.
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The economic downturn is intensifying pressure on the South Korean central bank to slash interest rates again, possibly as early as May. With the bank already having cut rates three times since October 2024, a rate cut seems imminent as a measure to jumpstart the economy.
(Reporting by Cynthia Kim, Writing by Rene Wagner, Editing by Sabine Ehrhardt - For further questions, please contact our newsroom in Berlin at [email protected])
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Enrichment Data Highlights:
- Trade Surplus and Tariffs: The U.S.-South Korean trade surplus reached a record high of $55.6 billion in 2024, up 25% from the year prior. The U.S. implemented a 25% tariff on South Korean autos in April 2025, causing a 6.5% year-on-year decline in auto exports to the U.S. in the initial part of April.
- Exports Decline: Overall exports from South Korea to the U.S. have taken a hit due to tariffs, dropping by 14.3%.
- GDP and Economic Stability: The broader trade tensions and potential recession risks due to trade uncertainties have been highlighted, with the tariffs on key South Korean exports, such as automobiles, posing a threat to economic growth.
- Impact on Companies: The auto tariffs significantly affect Hyundai and Kia. The decline in exports could lead to reduced production levels, affecting both companies' profitability and employment in the sector.
- Samsung: While the company is not directly affected by the auto tariffs, the broader trade tensions and potential future restrictions on electronics components could impact Samsung's operations and supply chains.
- Shipbuilding Industry: The South Korean government has earmarked shipbuilding as a key negotiation area with the U.S., given its economic significance. However, the direct impact of U.S. policies on this sector remains unclear.
- Overall Impact: The trade dispute has mainly affected South Korea's automotive exports, with broader implications for economic stability and growth. The situation remains fluid, with ongoing negotiations aiming to find mutually beneficial trade agreements.
- Yoon Suk-yeol, South Korea's President, faces challenges with his nation's economy, as the ongoing trade dispute with the U.S. has led to a shrinking GDP, with industrial production remaining sluggish.
- The South Korean finance sector must contemplate the implications of the slump, with the central bank eyeing a possible interest rate cut in May, an action taken three times since October 2024 in an attempt to revitalize the economy.
- Exports, a significant aspect of South Korea's economy, have shown a marked decline, with a dip of 1.1% in the first quarter of 2024 compared to the last quarter and a more pronounced drop of 5.2% in the first 20 days of April, indicating a shrinking industry sector.
- In the face of this challenging economic climate, 2024's trade surplus with the U.S. reached an all-time high of $55.6 billion, though Trump's imposed 25% tariff on auto imports at the beginning of April may hinder the growth of big-ticket companies like Hyundai-Kia and Samsung in the coming months.
