The U.S. tariff policy has reached another turning point. Following a ruling by the U.S. Supreme Court that halted country-specific tariffs, the Trump administration has invoked Trade Law 301 as a new tool for tariffs. An additional 12.5% tariff has been announced for South Korea, citing insufficient measures to block imports of products made with forced labor. With the potential for further tariffs due to structural overproduction, it is difficult to rule out exceeding the agreed 15% between South Korea and the U.S.
Last year, South Korea pledged $350 billion in investments in exchange for reducing mutual tariffs from 25% to 15%. The government and businesses viewed this as a safety net to reduce uncertainty in exports to the U.S. However, if the U.S. alters the legal basis for tariffs and imposes new ones, the hard-won agreement could be effectively nullified. The worst-case scenario could see investment commitments remain while tariff benefits disappear.
Trade Law 301 allows the U.S. to investigate unfair practices by trading partners and take retaliatory measures. Unlike mutual tariffs that apply uniformly across countries, this law can target specific policies, industries, and products. The tariff rates and applicable targets can vary based on U.S. judgment, making it more challenging for businesses to respond. Investigations could also extend to digital regulations, subsidies, and currency issues, in addition to forced labor and overproduction.
The government's top priority should be to establish the 15% as a definitive cap on total tariffs. Even if the names and legal bases of tariffs change, it is crucial to secure a written confirmation from the U.S. that additional tariffs on South Korean products will not exceed 15%. Investments being pursued under the existing agreement should also be linked to tariff exemptions and reductions. It will be difficult to maintain negotiating power if tariffs are discussed only after investments are executed.
In addressing forced labor issues, the government must not rely solely on defensive arguments. The U.S. claims that South Korea has not sufficiently blocked imports of foreign goods produced with forced labor. The government needs to enhance relevant laws and customs procedures and quickly establish a system to trace supply chains from raw materials to finished products. Guidelines and certification systems should be developed to ensure that South Korean companies can inspect raw materials and intermediate goods sourced from third countries. Eliminating the justification for tariffs will strengthen the case for their withdrawal.
To counter overproduction investigations, industry-specific data must be presented. The U.S. may view certain South Korean industries, such as steel, petrochemicals, and batteries, as relying on government support for overproduction. However, not all production increases can be classified as unfair practices. The government and industry must jointly demonstrate production capacity, subsidies, market prices, and the effects of U.S. investments and local employment. Negotiations should also be pursued to exclude South Korean materials and components that contribute to U.S. supply chain stability from tariff targets.
Above all, it is crucial to avoid being treated less favorably than competitors. If tariffs cannot be completely eliminated, at the very least, South Korea should not face higher rates than competitors such as Japan, the European Union, and Taiwan. If only South Korea faces higher tariffs on the same products, it could lead to a loss of market share in the U.S. beyond just reduced exports. This is why relative price competitiveness is more important than the tariff rate itself.
Domestic measures to address potential impacts should also be prepared in advance. The government should assess the tariff impacts on vulnerable sectors such as petrochemicals, steel, batteries, and general machinery, and expand export financing and trade insurance. However, a blanket subsidy approach for all companies should be avoided. Support should differentiate between companies that are competitive but facing temporary shocks and those needing restructuring. Efforts to diversify export markets and transition to high-value-added products should also be pursued.
The U.S. tariff pressure is not a matter that can be resolved in a single negotiation. It is a long-term battle that will involve changing legal bases and justifications. The government should not only focus on maintaining the 15% agreement but also bundle institutional improvements, item-specific negotiations, and industrial competitiveness enhancements into a single strategy. In trade, promises are not kept automatically. South Korea can minimize tariff damage by leveraging its investment and supply chain value as a negotiating tool.
* This article has been translated by AI.
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