Trump warns South Korea as earnings fall

A letter from former U.S. President Donald Trump has arrived in South Korea, warning that starting August 1, a 25 percent reciprocal tariff will be imposed on South Korean imports as previously announced. The letter urges Seoul to present a trade deal acceptable to Washington by the end of the month. With three weeks left before the tariffs take effect, the deteriorating performance of major South Korean exporters, such as Samsung Electronics, LG Electronics, and Hyundai Motor, is weakening Korea’s bargaining position.

Despite being military allies of the United States, South Korea and Japan were the first two of the 14 countries to receive such letters. The Korea-U.S. Free Trade Agreement was not even considered in Washington’s decision. Japan, criticized for slow progress in negotiations, accepted a 25 percent tariff rate, one percentage point higher than initially planned. The European Union, initially scheduled to face a 20 percent tariff, was excluded, likely because it agreed to a 10 percent tariff and is still negotiating. In addition, most EU member states, which overlap with NATO, agreed to raise defense spending to 5 percent of their GDP, aligning with U.S. expectations.

In the letter, Trump wrote, “If your country opens its closed market to the United States and removes tariff and non-tariff barriers, we might consider adjusting the tariff rate.” This amounts to intense pressure to present satisfactory proposals within three weeks to avoid full tariff imposition. South Korea is now being forced to consider new concessions beyond the already disclosed offers, such as shipbuilding cooperation and expanding imports of U.S. liquefied natural gas.

Even before the full impact of the tariffs has been felt, South Korean companies are experiencing deteriorating earnings. Samsung Electronics reported a 55.9 percent drop in operating profit and a 0.1 percent decrease in sales for the second quarter compared to the same period a year earlier, due to a combination of a 10 percent temporary tariff on home appliances and sluggish semiconductor sales. LG Electronics saw its operating profit and revenue fall by 46.6 percent and 4.4 percent, respectively, both worse than market forecasts and categorized as an “earnings shock.” Hyundai Motor, Kia, and POSCO Holdings, hit with 25 percent and 50 percent tariffs, respectively, are also expected to post weaker second-quarter results.

In U.S.-Korea trade negotiations, the non-negotiable bottom line must be securing a reasonable tariff level that does not undermine the competitiveness of key export sectors such as automobiles, semiconductors, electronics, and steel. To that end, South Korea may have to consider difficult decisions, such as increased defense spending or opening sensitive markets, despite the political and economic burden. In the face of tight timelines and difficult circumstances, trying to protect everything could ultimately lead to losing even more.