Korea must move fast to avert U.S. tariffs

South Korea’s exports started the year on a strong note in January, surpassing a record $60 billion. Yet automobile exports to the United States fell 12.6 percent, underscoring mounting pressure from U.S.-driven tariffs. Adding to the uncertainty, U.S. President Donald Trump has warned that tariffs on South Korean goods could be raised again, from 15 percent to 25 percent. If such a hike materializes, automobiles, South Korea’s largest export to the United States, would face a direct and significant blow.

Washington has made clear that no trade agreement will move forward until South Korea’s National Assembly gives its approval, pressing Seoul to pass a special law governing U.S.-bound investment. Industry Minister Kim Jung-kwan and Trade Minister Yeo Han-koo, often described as the government’s two top trade officials, rushed to Washington in response. The outcome, however, amounted to little more than easing what officials described as “unnecessary misunderstandings” between the two sides. Reports indicate that the U.S. administration has already begun procedural preparations for tariff increases, including steps to publish them in the Federal Register. The risk of a tariff shock from the United States has now entered an acute phase.

The controversial special law on U.S.-bound investment outlines how South Korea would implement a $350 billion investment commitment made in exchange for lowering U.S. reciprocal tariffs to 15 percent. Introduced in November last year, the bill remains stalled in the National Assembly. The Democratic Party of Korea has said it plans to pass the legislation during the February extraordinary session. The People Power Party, whose lawmaker chairs the relevant parliamentary committee, argues that the bill must first receive formal National Assembly ratification. The United States implemented the bilateral agreement through a presidential executive order. There is little justification for South Korea to lose time or impose self-inflicted constraints by insisting on additional procedures.

The scale of U.S.-bound investment places a heavy burden on the South Korean economy. Even so, given the country’s deep reliance on exports such as semiconductors and automobiles, it is an unavoidable choice. Japan and Taiwan have already secured tariff relief by committing massive investments in the United States. Japan, which is preparing for a summit with the U.S. president in March, is reportedly narrowing its options for a flagship investment project to be unveiled at the meeting. If South Korea continues to hesitate, it risks giving Washington justification for additional retaliatory measures.

South Korea is already more exposed to tariff shocks than Japan due to its smaller share of automobile production in the United States. If Washington raises auto tariffs again, Hyundai Motor and Kia would face additional annual costs estimated at 4 trillion won to 5 trillion won. To sustain export momentum, the National Assembly must act to remove uncertainty by passing the special law on U.S.-bound investment and addressing tariff risks. When national interests are at stake, there can be no division between the ruling and opposition parties.