Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
New gov’t to face tricky task of addressing US tariff fallout, possible extra budget
The National Assembly approves a bill on this year's first supplementary budget worth 13.8 trillion won ($9.88 billion) in its plenary session, May 1. Yonhap
By Yi Whan-woo
The new government that takes power after the June 3 presidential election is expected to face the tricky task of addressing the negative consequences of both the U.S tariff policy and a possible extra supplementary budget to counter their effects.
The adverse effect of the U.S. duties imposed on Korean imports is already being felt, even before the implementation of a 25 percent "reciprocal" tariff that is at the center of Washington’s hostile trade policies against Seoul.
According to the Ministry of Trade, Industry and Energy, Korea’s exports to the U.S. fell 6.8 percent in April from a year earlier, in contrast to the country's worldwide exports that rose 3.7 percent over the same time period.
The year-on-year decrease rate in outbound shipments for semiconductors was 31 percent, 16.6 percent for cars and 22.6 percent for machinery.
The declines came even as the U.S. has limited its levies to a 10 percent base tariff and item-specific tariffs since last month.
Korea Customs Service data showed that Korea’s outbound shipments worldwide dropped 23.83 percent year-on-year in the first 10 days of the month, which was partly attributed to several holidays at the beginning of May.
The data suggests that the pace of decline in exports would be greater if a 25 percent reciprocal tariff were imposed.
The reciprocal tariff is on the table in ongoing negotiations between Korea and the U.S.
“The unfavorable trade circumstance faced by Korea suggests a need for the new government to mobilize financial resources,” Inha University economics professor Shin Il-soon said.
However, when asked whether the budget is sufficient to deal with U.S. tariff-related impacts, the professor said it is not, and that drawing up an additional supplementary budget may be necessary.
He still remained cautious about an extra budget, pointing out that 13.8 trillion won ($9.88 billion) has already been allocated in addition to the regular 2025 budget.
Approved by the National Assembly, the 13.8 trillion won in spending marked this year’s first supplementary budget in a bid to boost sluggish domestic demand and support exporters amid a more pessimist economic outlook.
The government covered about 69 percent or 9.5 trillion won of the first supplementary budget through treasury bonds after struggling with a shortage in tax revenue.
“Under the circumstances, a possible second extra budget means more treasury bonds need to be issued, making it tougher to reduce national debt,” said Shin Se-don, a professor emeritus of economics at Sookmyung Women’s University.
He noted that the national debt totaled 1,175.2 trillion won in 2024. The amount is expected to exceed 1,300 trillion, if the government spends 20 trillion won for a second supplementary budget.
Financial services company Morgan Stanley determined a supplementary budget between 20 trillion won and 35 trillion would be needed for Korea to increase its growth rate by 0.22 to 0.31 percentage points, after its economy shrank in the first quarter of the year.