Troy Stangarone is the senior director of congressional affairs and trade at the Korea Economic Institute.
Korea needs a new long-term economic strategy
Troy Stangarone
By Troy Stangarone
During the first Trump administration, Seoul began to contemplate an economic strategy that reduced its dependence on the United States and China. With the return of Donald Trump and the more aggressive use of tariffs by his administration, a new long-term strategy is needed.
Trade remains critical for the Korean economy. In 2024, exports were the equivalent of 39.1 percent of Korea’s GDP. While down from a high of 54.1 percent in 2012, the Korean economy is unlikely to rebalance away from exports in the near future. With exports as a percentage of GDP unlikely to decline as low as the U.S. proportion of 10.9 percent of GDP, the reliability of Korea’s trading partners will remain critical. Increasingly, the United States and China do not appear to offer Korea such reliability.
In the short-term, the Lee administration is correct to focus on the economic relationship with the United States. America is Korea’s second largest trading partner and according to U.N. trade statistics, 18.8 percent of all Korean exports go to the United States. While China remains Korea’s largest trading partner, in 2024 Korean firms only shipped $4.5 billion more in goods to China than the United States. Any rebalancing of Korea’s trading profile needs short- to medium-term stability in the economic relationship with the United States.
For some firms, the United States market is also significantly more important than China. Last year, Hyundai sold 4.1 million vehicles globally, but 1.6 million were in the United States. Only 469,000 were sold in China. With existing and planned investments in the United States of $54 billion in EV battery manufacturing, the United States is also an important market for the long-term development of Korea’s EV battery industry.
The importance of the U.S. market and U.S. policies for Korean firms extends beyond the automotive industry. Samsung has largely been pushed out of the Chinese market in the smartphone segment, but it trails only Apple in the United States with about a quarter of the market. Beyond sales of smartphones, U.S. policy on export controls is critical for the long-term success of Samsung and SK Hynix’s semiconductor sales within the United States and globally.
While the U.S. market has grown in importance for Korean firms since the implementation of the KORUS FTA, shifts in trade policy in the United States and the growing competitiveness of Chinese firms presents medium- to long-term challenges for Korea’s economic policy. The experience of Chinese economic retaliation from the deployment of the THAAD missile defense system and the tools that China has used to develop firms as peer competitors to Korean firms in strategic industries also suggests that China is unlikely to be the source of economic growth that it was for much of the last two decades. A new approach is needed.
A first step would be for Korea to actively engage the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP). While Korea has bilateral FTAs with CPTPP states or agreements with members such as Japan through the Regional Comprehensive Economic Partnership (RCEP), there would be benefits to Korea joining the CPTPP. The CPTPP is more expansive and ambitious than some of Korea’s other trade agreements with its members, but it is also a likeminded grouping of states that support a rules-based trading system. Coordinating with states that share Korea’s interests would strengthen cooperation for maintaining a reliable trade system while giving Korea more input into the future development of trade rules.
Seoul should also look to diversify its trade. Traditionally, this has meant looking to expand partnerships in South and Southeast Asia, but a more strategic approach may be needed. Rather than focusing solely on other parts of Asia, Korea should embrace the wider definition of the Indo-Pacific put forward in its initial strategy to begin expanding economic ties into parts of Africa and Latin America. Korea will also need to deepen ties with advanced European economies, where there are opportunities to tap into the EU’s new $150 billion defense fund.
While part of any new economic plan will include trade diversification, it will also require domestic reforms. The most important reform will be integrating AI into the economy in a manner that supports innovation and reduces costs through skill enhancements to ensure that Korean firms are competitive abroad, but not at the expense of domestic jobs.
While the temptation might be to wait out a second Trump administration, there is no certainty that the next U.S. president will not share a similar view of trade policy. China is increasingly technologically competitive with Korean firms, and as THAAD demonstrates, is willing to use its economic leverage for policy objectives. Creating more opportunities for Korean firms and enhancing competitiveness will be needed over the medium-term for success to overcome these challenges.
Troy Stangarone is the director of the Hyundai Motor-Korea Foundation Center for Korean History and Public Policy and the deputy director of the Indo-Pacific Program at the Woodrow Wilson Center.