How A Tariff Exempt South Korea Could Better Fulfill President Trump’s Goals
Joseph Lim
On February 10, 2025, President Trump signed an executive order that would impose 25 percent tariffs on imports of steel and aluminum and also proposed “reciprocal” tariffs on a country-by-country basis. As a result, South Korean business groups are scrambling to send delegations to the United States, and South Korean acting president Choi Sang-mok is seeking talks with the Trump administration. A leading South Korean think tank Korea Development Institute cited a “deterioration of the trade environment” and lowered already gloomy economic growth prospects. With the South Korean government in paralysis, the business community is in a state of emergency.
President Trump aims to generate revenue, protect U.S. industry, and persuade other countries to make favorable concessions to establish “fair and reciprocal trade.” However, widespread tariffs on South Korea could undermine these goals by disrupting the intricate interdependencies that U.S. and South Korean companies — and consumers — have built over the past decades. Instead, President Trump could best achieve his objectives if he upholds the near-zero tariff rates that he agreed to with South Korea in 2018, forgoing proposed tariffs — as he has already considered for Australia — and embraces the foreign direct investment, industrial know-how, and investor incentives that the South Korean government and companies are eager to provide. Tariffs will likely result in an economically weaker Korea and a shakier alliance, which China is all too ready to exploit.
South Korea is Advancing U.S. Goals
During President Trump’s first term, and continuing into his second, South Korea has strengthened American industries and taken steps that favored U.S. interests — even without tariff threats. South Korea has consistently ranked among the top foreign direct investors in the United States. Major conglomerates such as SK Hynix, Samsung, and Hyundai Motors continue to plan, construct, and operate factories across multiple states and are hiring U.S. workers. Samsung and SK Hynix, in particular, have complied with U.S. export controls, reduced their chip operations in China, and joined TSMC to help the United States reclaim its position as a major semiconductor manufacturing hub.
South Korean firms are also revitalizing America’s manufacturing base, which has lost ground to heavily subsidized Chinese competitors. Companies like HD Hyundai Heavy Industries are partnering with U.S. universities to educate the next generation of industrial workers. Meanwhile, Hanwha Ocean acquired Philly Shipyard to speed up the production of U.S. vessels. In addition, South Korean companies serve as primary equipment suppliers for next-generation nuclear energy startups that are developing small modular reactors. By investing across these sectors, South Korean businesses contribute holistically to Trump’s goal of “making America great again.”
Tariffs Undermine President Trump’s Goals
South Korean and U.S. manufacturers rely on high-quality, reasonably priced South Korean steel and aluminum. South Korean steel mills have dutifully complied with a bilateral agreement made during President Trump’s first term that limits the volume of steel exports to the United States in exchange for a permanent tariff exemption for South Korean steel mills. An additional 25 percent tariff on top of that quota would inevitably cut off more South Korean steel supplies, hurting U.S. and South Korean manufacturers who depend on those supply chains and likely causing price inflation for American consumers. Worse, Chinese suppliers will likely flood the South Korean market if South Korean steel and aluminum producers lose enough U.S. customers, thereby strengthening China’s dominant position in global metal production. In short, tariffs hurt President Trump’s goal of protecting U.S. industry.
South Korea’s Trade Surplus with the U.S. Benefits President Trump
Although it may not be obvious, South Korea’s trade surplus with the United States ultimately circulates in ways that benefit it. South Korea is an export-driven economy supported by a sophisticated manufacturing sector that compensates for a less productive service sector. Surplus funds from the United States flow back into South Korea’s economy, fuel its manufacturing production, and are reinvested in the United States in the form of advanced chips, factories, and wages paid to U.S. workers. According to one estimate by a South Korean politician, on average, 78.5 percent of South Korea’s trade surplus with the United States flowed back as foreign direct investments since President Trump’s first term.
Given South Korea’s ongoing political challenges, elevated corporate debt levels, and overall economic struggles, a robust two-way trading relationship will yield the highest support for President Trump’s agenda. It’s also important to remember that while the United States may run a deficit with South Korea in some areas, agriculture and services sectors enjoy trade surpluses. It is in the interest of U.S. businesses for South Korean consumers to have their purses filled and be open to purchasing U.S. goods and services.
What President Trump Can Ask by Withdrawing Threat of Tariffs
Japanese Nippon Steel reportedly plans to invest in U.S. Steel rather than acquire existing American operations. President Trump could similarly request South Korean steelmakers to invest directly in struggling American mills or to build new mills — something they are already considering. In fact, Hyundai Motor Group plans to build its first overseas steel mill in New Orleans, Louisiana.
Last year, in a phone call with then-President Yoon Suk Yeol, President Trump highlighted South Korea’s shipbuilding prowess as key to rebuilding the U.S. Naval fleet. South Korean shipbuilders like Hanwha Ocean and HD Hyundai are all too willing to upgrade the U.S. shipbuilding sector by acquiring defunct American shipyards, sharing efficient production methods, and constructing high-quality merchant ships. Notably, the vice president of the Shipbuilders Council of America said American shipyards “are willing to work with our fellow Korean shipbuilders and allied shipyards to improve our processes and increase efficiencies.”
Historically, U.S. investors have faced various limitations when investing in South Korea, but under Acting President Choi’s leadership, the South Korean government is taking steps to open its financial market to American investors. President Trump could ask the South Korean government to offer more incentives and mutually promote South Korea’s “value-up” program to boost its stock market performance.
Finally, because South Korea is a major importer of oil and LNG, it has the potential to become a significant customer for U.S.-produced energy. President Trump’s deregulation push in the fossil fuel industry could be matched with streamlining regulatory processes in areas like the Current Good Manufacturing Practice standards, which currently require South Korean pharmaceutical and biotech companies to wait five to ten years before establishing facilities in the United States.
Likewise, by encouraging two-way trade and investment, President Trump can secure economic and diplomatic advantages — especially against China — by bringing South Korea more firmly into the U.S. orbit of manufacturing and commerce.
China May Exploit a Weakened South Korea and U.S.-ROK Alliance
China has been skillfully exploiting fissures in transatlantic efforts, offering itself as a trade and investment partner to European countries like the United Kingdom and Germany in bolstering economic growth. China is poised to do the same in South Korea.
On February 7, 2025, Chinese President Xi Jinping met with South Korean National Assembly Speaker Woo Won-Shik for 42 minutes — greatly exceeding the planned 15 minutes — and remarked that he would seriously consider participating in the upcoming APEC Summit hosted in Gyeongju, South Korea. Xi pointed out the importance of China and South Korea “work[ing] together to consolidate and grow their strategic cooperative partnership.” Additionally, one of South Korea’s presidential candidate forerunners, Lee Jae-myung, is publicly advocating for a dovish approach toward China.
If President Trump insists on tariffs and erecting barriers for South Korean companies, the existing positive trend of South Korean companies shifting FDI and trade from China to the United States could be paused or reversed. Boycotts of U.S. goods, such as in Canada, could spread to Korea, where acute pro-U.S. and anti-U.S. public sentiment coexist.
A Reliable Business Partner
South Korea has proven itself as a dependable partner time and again. By withdrawing his intention to impose a 25 percent tariff — as he did in his first term — President Trump could better leverage the opportunities that the South Korean government and companies are willing to provide. This approach would help revitalize the U.S. manufacturing base and secure a stronger, more beneficial relationship — one that supports President Trump’s core goals of revenue generation, industrial protection, and favorable concessions for the United States.
Joseph Lim is a master’s student in the Asian Studies program at Georgetown School of Foreign Service, focusing on East Asian macroeconomic issues.
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