U.S. Tariff War Enters New Phase as Forced Labor Tariffs Take Effect

The United States has entered a prolonged trade conflict as it implements forced labor tariffs under Trade Law 301, following the expiration of temporary global tariffs under Trade Law 122. The South Korean government now faces the challenge of maintaining the agreed 15% tariff limit while also responding to item-specific measures under Trade Expansion Act 232.

According to the Ministry of Trade, Industry and Energy, the U.S. Trade Representative (USTR) confirmed on July 23 that it would impose tariffs of 10% to 12.5% on 60 economic zones that do not sufficiently block imports of products made with forced labor. These tariffs took effect at 12:01 a.m. Eastern Time on July 24.

This action largely replaces the 10% global tariff that the U.S. had temporarily imposed for 150 days under Trade Law 122, following a Supreme Court ruling on tariff legality. The 60 targeted economic zones account for 99.4% of all U.S. imports, effectively filling the gap left by the global tariff.

For South Korean products, a total tariff of 12.5% will apply, combining existing tariffs with the forced labor tariffs. If the existing tariff is lower than 12.5%, the difference will be covered by the 301 tariff; if it is already above 12.5%, no additional tariffs will be applied.

The key issue is the ongoing investigation into structural overproduction capacity in the manufacturing sector under Trade Law 301. In March, the U.S. began a separate investigation involving South Korea, China, the European Union, Japan, and 13 other economic zones. The USTR has identified sectors of concern, including semiconductors, steel, automobiles, and batteries.

The South Korean government maintains that the final tariff rate, reflecting both forced labor and overproduction measures, must not exceed the agreed 15% limit. With the forced labor tariff set at 12.5%, only a nominal 2.5 percentage points remain before reaching the cap. While the U.S. has reaffirmed its commitment to existing agreements, uncertainties remain regarding the tariff rates, applicable items, and exemptions resulting from the overproduction investigation.

Even if the government successfully defends the 15% limit, concerns persist. The U.S. is expanding Trade Expansion Act 232 measures based on national security, having already included certain home appliances like refrigerators and washing machines under a 25% tariff. Investigations and follow-up actions are also underway for strategic industries such as semiconductors and pharmaceuticals.

Items subject to 232 tariffs are exempt from the forced labor tariffs, but higher tariffs may still apply on a case-by-case basis. This means that even if the final tariff rate remains within the 15% limit, individual export items could face higher rates. The varying legal bases, tariff rates, and exemption conditions for each item are expected to increase the burden on companies regarding customs and contract management.

This prolonged tariff conflict poses challenges for the South Korean economy. The Bank of Korea has previously analyzed that U.S. tariff policies, reflecting the South Korea-U.S. tariff agreement, could lower the country's growth rate by 0.45 percentage points in 2025 and 0.60 percentage points in 2026. The export growth rate is also estimated to decrease by 1.6 percentage points.

As the U.S. diversifies its tariff system with different legal bases and targeted items, the government is urged to analyze the sector-specific impacts from the outset and develop exemption arguments for each item. Companies must also revise their export and management strategies to account for tariff burdens.

Jeon Yoon-sik, a senior researcher at the Korea International Trade Association, emphasized, "Companies need to view U.S. tariffs as constants rather than variables when formulating export and management strategies. They must proactively prepare for potential 301 measures related to overproduction and the possibility of overlapping tariffs while managing trade issues stably."