Uncertain US trade policy to cut S. Korea's economic growth by 0.13 pp

Seoul, Sep 1
Uncertainty surrounding the United States' trade policy alone is estimated to reduce South Korea's economic growth rate by about 0.13 percentage point this year, the central bank said on Monday.

In late July, Seoul and Washington reached a crucial agreement in which the U.S. imposes a 15 percent tariff on South Korea, down from the initially planned 25 percent, in exchange for an investment pledge of $350 billion in the U.S, reports Yonhap news agency.

Despite the deal, the ongoing uncertainty regarding the trade policy under the Donald Trump administration could weigh heavily on the South Korean economy, potentially lowering its economic growth rate by up to 0.13 percentage point in 2025 and 0.16 percentage point next year, according to the analysis by the Bank of Korea (BOK).

The anticipated slowdown is largely attributed to a sharp decline in exports and investment, as heightened uncertainty discourages firms from entering foreign markets or making large-scale investments.

While exports rose in the first half of the year, largely on front-loading in anticipation of potential tariff hikes, they are expected to decline in the second half as U.S. demand for imported goods would weaken.

Private consumption is also expected to fall as households would show a stronger tendency toward precautionary savings amid economic uncertainty, the BOK noted.

Had the tariff negotiations not been concluded and uncertainty persisted into next year, the economic impact could have been more severe, potentially dragging down growth by 0.17 percentage point in 2025 and 0.27 percentage point in 2026.

"Regardless of whether tariffs are actually imposed, the heightened uncertainty in U.S. trade policy following the start of Trump's second term could have a negative impact on the economy," a BOK official said.

"It is necessary to continue close consultations with the U.S. on details to prevent a renewed increase in U.S. trade policy uncertainty," he added.

In its latest forecast released last week, the BOK expected the local economy to grow 0.9 percent this year and 1.6 percent in 2026.