Will Korea stand firm against Trump’s economic coercion?

Park Chong-hoon

By Park Chong-hoon

• Published Jul 15, 2025 4:10 PM KST

The proposed tariffs by the U.S. on its trade partners appear to be not only protectionist, but also an instrument of economic coercion. The tariff plan for Korea — 25 percent across the board, 25 percent on autos, 50 percent on steel and a crushing 200 percent on pharmaceuticals — seems designed to force Korean companies to abandon their home base and relocate to the U.S. While Korea is not the U.S.’ only tariff target, it is uniquely vulnerable to such pressures.

A key reason for this vulnerability is Korea’s heavy economic trade dependence on the U.S. — it ran a $55.6 billion trade surplus with the U.S. in 2024, the eighth-largest globally. We think the Donald Trump administration incorrectly views this surplus as evidence of unfairness that requires compensation, rather than as a natural result of Korea’s competitive advantages. This narrative ignores a crucial fact: that since 2017, Korea has reinvested a majority of its surplus with the U.S. directly back into the U.S. economy. According to Korea International Trade Association and the Export-Import Bank of Korea data, Korea invested an annual average $14.4 billion in the U.S. during Trump's first term, equal to 96 percent of its annual trade surplus. Under Biden, this figure rose to $ 26.9 billion per year, or 71 percent of its surplus. Across both administrations, 84 percent of Korea’s trade surplus with the U.S. was recycled through direct investment, a reinvestment rate unmatched by any other U.S. trade partner.

The direct result of Korea’s investment has been job creation in the United States: Korean companies created 20,360 new American jobs in 2023, more than any other country. This result outpaced that of China, Japan, Germany and the U.K., contributing more than 80 percent above the average job count of the U.S.’ top 10 foreign direct investment contributors. This represents the actions of a constructive partner.

Korea’s military alliance with the U.S., which should be strengthening its position, is now weakening it. The country hosts 28,500 U.S. troops and depends on the U.S. for regional security, which likely gives the U.S. confidence to impose punitive tariffs without fear of retaliation. Korea’s industrial sectors are deeply integrated into the U.S. ecosystem: its semiconductor companies rely on U.S. chipmaking equipment and export licenses, and its pharmaceutical firms need FDA approval to access the U.S. market. While these connections create economic value, they are also a point of vulnerability being exploited by the Trump administration.

The proposed tariffs would devastate key Korean industries: 200 percent on pharmaceuticals would eliminate $4.2 billion of biosimilar exports to the United States; 25 percent on autos would force Korean exporters to build factories in the United States; and even with a weaker Korean won, 50 percent on steel would make steel exports uncompetitive. These tariffs appear designed not to balance trade, but rather to force Korean manufacturing to relocate to America.

Recent precedent in U.S. trade agreements offers a sobering lesson. The U.K. — the closest ally of the U.S. — secured only limited relief: auto tariffs cut to 10 percent (from 27.5 percent), capped at 100,000 vehicles annually, with conditional suspensions on steel and aluminum duties, and no exemptions for other sectors. This showed that the closest U.S. allies can only hope for partial protection from tariffs.

Vietnam’s experience was equally instructive. Vietnamese companies still face a 20 percent base tariff and vague “transshipment” rules that threaten 40 percent duties on goods using Chinese materials. Many firms have seen their orders drop 15-20 percent after the agreement. The U.S. provided no clear guidance, leaving businesses to navigate the uncertainty on their own.

How can Korea avoid such a trap? The government could provide a three-pronged response. First, it must reduce overreliance on the U.S. market, which absorbed more than 18.8 percent of domestic exports in 2024. Korea could aggressively expand trade with Europe, Southeast Asia, the Middle East and India — existing agreements such as the Korea-EU Free Trade Agreement and the Regional Comprehensive Economic Partnership provide a framework.

Second, Korea could double down on its technological advantages. The country leads in memory chips, biosimilars and battery components — sectors that give it leverage. It could look to increase investment in research and development and strengthen intellectual property protection.

Third, Korea could remind the U.S. that it contributes significantly to its strategic interests: it hosts U.S. troops, shares intelligence and aligns with the U.S. against China. Cooperation on trade and regional security are inseparable factors; waging a trade war on a key ally such as Korea would undermine the U.S.’ alliance credibility in Asia.

Korea can also coordinate with other economies that face similar pressures. Japan faces auto tariffs, and Europe is contending with carbon and digital levies. A unified response could raise the U.S.’ cost of treating its allies as adversaries, potentially creating space for shared solutions.

The country’s strong domestic fiscal position offers headroom to support domestic industries impacted by U.S. tariffs. Any forthcoming stimulus could be targeted and effective, focusing on areas like research and development, market entry assistance, export insurance and workforce training in strategic sectors.

The global trading system appears to be shifting from a rules-based order to power-based competition. If Korea’s economy fails to adapt, it stands to fall behind. A strategic response could transform the ongoing trade challenge into long-term economic resilience by reducing dependence on any single market.

Park Chong-hoon is director at the Standard Chartered Bank Korea.