Gov't unveils $9.74 bil. financial aid to cushion blow from US tariffs

Industry Minister Kim Jung-kwan, left, and U.S. Commerce Secretary Howard Lutnick talk during a signing ceremony for a memorandum of understanding regarding manufacturing business partnerships at the Willard InterContinental Washington, Aug. 25 (local time). Courtesy of Ministry of Trade, Industry and Energy

The Korean government Wednesday came up with a support package for industries affected by U.S. tariffs, including 13.6 trillion won ($9.74 billion) for business financing and a record 270 trillion won for export credit insurance.

According to the Ministry of Trade, Industry and Energy, the comprehensive emergency strategy was based on three principles: fully mobilize policy finance, coordinate efforts across all ministries and address corporate needs.

In July, Seoul and Washington agreed to a 15 percent blanket tariff on Korean exports after rounds of negotiations. However, despite a reduction from the previously threatened 25 percent, the rate still presents a significant financial challenge. The package aims to cushion local exporters from the tariff.

“Some 13 government ministries have joined forces to develop these countermeasures in response to the tariffs,” Industry Minister Kim Jung-kwan said.

“We will move swiftly to ensure that businesses will feel the impact of today’s measures on the ground. And as the trade environment continues to shift, we will keep uncovering and delivering support through ongoing export support teams and roundtable discussions so companies can adapt in time and seize new opportunities.”

The government is ramping up short-term emergency financing to 13.6 trillion won to help stabilize business operations, expanding the eligibility and borrowing limit for more companies to access the funding.

The Korea Development Bank’s low-interest loan program for tariff-impacted industries will increase the loan caps per company 10-fold, which were originally 3 billion won for small enterprises and 5 billion for medium-sized enterprises, and will further cut interest rates by 0.3 percentage points. The government will further develop industry-specific policies to provide incentives across sectors in the second half of the year.

Industry Minister Kim Jung-kwan, second from left, speaks during a meeting to announce the government's support package for industries affected by U.S. tariffs at the Government Complex Seoul, Wednesday. Yonhap

The package also includes the largest-ever support for export credit insurance at 270 trillion won. The eligibility for a 60-percent reduction in insurance and guarantee fees for small and medium-sized enterprises (SME) will be extended, along with the support period to the end of this year.

In addition, new programs will be set up to offer not only facility loans but also long-term operating funds to help overseas subsidiaries manage issues with cash flow and financial challenges from tariffs.

“This year’s target has been raised from 256 trillion won to around 270 trillion won. This includes both short‑term and medium‑ to long‑term (supports),” a ministry official said in a briefing at Government Complex Sejong.

“Concerns over payment risks can directly deter companies from exporting. Since trade finance availability strongly affects export performance, strengthening short‑term export insurance is also expected to be decisive for this year’s growth. So the strategy is to expand both short- and long‑term measures in parallel.”

To further ease the burden on exporters, about 420 billion won in export vouchers are distributed to companies through 2026. The limit on logistics cost subsidies is doubled from 30 million won to 60 million won.

Starting this month, SMEs will receive a 90 percent discount on fees for using 55 shared logistics centers in the United States. The government also plans to establish a logistics center dedicated to Korean beauty and cosmetics products in the U.S. next year.

Cars for export are parked at a port in Pyeongtaek, Gyeonggi Province, Aug. 26. Yonhap

The Ministry of SMEs and Startups also introduced a support package totaling 4.6 trillion won. A new special guarantee, worth 4.2 trillion won, will be provided by Korea Credit Guarantee Fund and Korea Technology Finance Corp. for impacted businesses, including steel and aluminum.

The measures also include 300 billion won in emergency funds for business stabilization, 100 billion won in contingency funds for trade risks and 100 billion won in support funds for new market entry.

Products such as steel and aluminum are subject to a much higher tariff of 50 percent. For those industries, the government will allocate 570 billion won in special support, including low-interest subsidies, expanded credit guarantees and a new loan guarantee specifically designed to strengthen export supply chains for these industries.

The Korea International Trade Association will also provide 20 billion won in emergency loans at special interest rates of 1.5 percent to 2 percent for its affected member companies from September through December.

The government is also reviewing joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to secure an economic alliance with countries facing similar situations.

CPTPP is a multilateral free trade agreement among Asia-Pacific countries. Under the Moon Jae-in administration, Korea sought to join the agreement in 2021, but mounting opposition from the agricultural and fisheries sectors ultimately stalled those efforts.

“Evaluating CPTPP membership has been the government’s position (since 2021). In the context of the Donald Trump administration’s tariffs, the strategic value of joining the agreement has become even more pronounced, and further review will proceed with these strategic considerations in mind,” the industry ministry official said.

“We will review local opinions, along with the agriculture ministry and related agencies, to reassess the feasibility of a renewed application should conditions allow.”