Korea to engage in negotiations with US over tariffs

U.S. President Donald Trump delivers remarks on tariffs in the Rose Garden at the White House in Washington, D.C., Wednesday (local time). The board shows a 25 percent reciprocal tariff on Korea. Reuters-Yonhap

As the U.S. decided to impose 25 percent “reciprocal” tariffs on Korean imports Wednesday (local time), the country’s government and businesses are bracing for impact, while seeking measures to offset potential damage to the world’s 12th-largest economy.

Hours after U.S. President Donald Trump announced the tariff plans, Korea’s acting President and Prime Minister Han Duck-soo presided over an emergency economic strategy meeting of ministers and urged the government to come up with “all available responses.”

“Given the gravity of the looming global tariff war, the government must mobilize all available resources to overcome the trade crisis,” Han said during the meeting at Government Complex Seoul.

Han instructed Minister of Trade, Industry and Energy Ahn Duk-geun to “work closely with businesses to thoroughly analyze the details and impact of the reciprocal tariffs,” and to “proactively engage in negotiations with U.S. counterparts to contain potential damage,” noting that Trump’s announcement marks the beginning of negotiations.

During the "Make America Wealthy Again” event at the White House, Trump announced his tariff plans, which included Korea as one of the “worst offenders” on a list of countries with which the United States has the largest trade deficits.

Following the plan, all imports into the U.S. will be levied with a 10 percent base tariff and those from “worst offender” countries will face individualized higher reciprocal rates.

Trump initially said his country would impose a combined 25 percent reciprocal tariff on Korea, but an executive order annex on the White House website showed 26 percent. The next day, Thursday (local time), the White House revised the number on the annex to 25 percent.

In addition, the U.S. imposed 34 percent duties on China, 20 percent on the European Union and 46 percent on Vietnam.

The reciprocal tariffs will exclude several items. Steel, aluminum, vehicles and car parts were excluded because they are already subject to a separate 25 percent tariff announced earlier. Semiconductors and pharmaceuticals were also exempted because Trump is planning other tariffs on those items.

While announcing the plan, the U.S. said the base tariff will take effect on April 5, while the higher reciprocal rates will take effect on April 9, meaning that there is still time for negotiations.

Acting President and Prime Minister Han Duck-soo examines documents at Government Complex Seoul, Thursday, during an emergency economic strategy meeting on the United States' 25 percent reciprocal tariff announcement. Courtesy of Prime Minister's Secretariat

Han also said in a separate meeting on Thursday afternoon that the government will announce emergency aid plans for the automobile industry by next week, and send Minister of Trade Cheong In-kyo to the U.S. for talks with his counterparts.

Ahn said during another emergency meeting that the government will continue close consultations with the U.S. at all levels, and work closely with the business community to thoroughly analyze the impact of tariff measures on Korea’s economy.

Deputy Prime Minister Choi Sang-mok also presided over a meeting to monitor macroeconomic impacts from the tariff with Bank of Korea Gov. Rhee Chang-yong and other top financial officials. Choi pledged to employ “all available stabilizing measures” if market volatility amplifies excessively.

Call for negotiations

With the government striving to devise countermeasures, the Korean business community voiced the necessity for negotiations with the U.S.

“Korea and the U.S. have long fostered a mutually beneficial economic partnership based on their free trade agreement (FTA), and Korean businesses have contributed to the growth of the U.S. economy and industry by making significant investments in key sectors such as semiconductors and automobiles, as well as creating quality jobs,” the Korea Chamber of Commerce and Industry (KCCI) said in a commentary.

“The KCCI hopes that the two governments will engage in close communication and coordination during the implementation process of the reciprocal tariffs, based on the trust built between the two countries over the years.”

For carmakers, the latest announcement was better than the worst-case scenario, as there had been speculation that the reciprocal tariffs could be imposed on top of the existing auto tariffs, which took effect Thursday.

Hyundai Motor CEO Jose Munoz said during a mobility show here that the company is “evaluating the impact,” but “there are no plans to raise prices in the United States at this time.”

Cars are Korea’s biggest export item to the U.S. Last year, Korean carmakers' exports to the U.S. totaled $34.74 billion, accounting for 49.1 percent of the country's total car exports worldwide, which stood at $70.79 billion.

Due to this, the Trump administration took issue with Korea’s carmaking industry, which resulted in Hyundai Motor Group's $21 billion investment plan in the U.S. last month.

“The ultimate goal of Trump’s measures is to correct trade imbalances,” an industry official said. “But for that to happen, the U.S. would need to sell more American cars in the Korean market, while containing Korean vehicle sales in the U.S. Will these new tariffs actually achieve that if Hyundai freezes vehicle prices? In fact, they may end up disrupting automotive value chains within the U.S. itself.”

Vehicles for export are parked at Pyeongtaek Port in Gyeonggi Province, Thursday. Yonhap

Korea Investment & Securities analyst Lee Ji-soo assumed that the tariff on vehicles will likely go down to 5 percent, citing the precedent of the first Trump administration. In 2018, Trump launched investigations into a tariff on imported cars, but ended up not imposing tariffs.

“The U.S. tariff is expected to have a negative impact across the entire American automotive value chain,” Lee said. “Given the significant disruption and inflationary pressure that the tariffs would cause, it seems unlikely that such a high tariff rate will be sustained."

Another official in the appliance industry also noted that the tariffs may not last long due to their impact on American consumers. He stressed that Thursday’s announcement serves as a signal to start negotiations, given that the reciprocal tariffs are set to take effect April 9.

“The 25 percent tariff is subject to a one-week negotiation, and there seems to be room for adjustment, given the cases of Mexico and Canada, whose final rates were ultimately reduced under the United States-Mexico-Canada Agreement (USMCA) framework,” the second official said.

The USMCA is a free trade agreement between the three countries, and the White House said USMCA compliant goods will continue to see zero percent tariffs.

“Given that Korea has the KORUS FTA as a strong foundation, there is a belief that the impact of the tariffs can also be mitigated through negotiations," the official said.