April 24 (UPI) — South Korea is bracing for the impact of the Trump administration’s tariffs, as reflected in its economic downturn and lowered growth forecast.
The Bank of Korea announced Thursday that Asia’s fourth-largest economy contracted by 0.2% in the first quarter over the previous year. All three major components — government spending, private consumption, and facility investment — declined.
Earlier this week, the International Monetary Fund halved its 2025 growth outlook for South Korea to 1%, marking the steepest downgrade among major economies.
While the IMF did not provide detailed reasons for the change, observers attributed it to deteriorating trade conditions triggered by the tariff war between the United States and China.
During the first 20 days of this month, South Korea’s exports fell 5.2% from a year ago, according to the Korea Customs Service. In particular, outbound shipments to the United States plunged 14.3%.
“It feels like we’ve suddenly entered a dark tunnel,” Bank of Korea Governor Lee Chang-yong told an April 17 press conference, following the central bank’s decision to freeze the benchmark interest rate at 2.75%.
“Uncertainty has grown to an unprecedented level. Given the intensity of U.S. tariff policies and the rapid changes in the responses of major economies, it is extremely difficult to even establish a baseline scenario for forecasts,” he said.
Experts in the private sector echoed similar concerns.
“The trade tensions caused by higher U.S. tariffs weigh heavily on the South Korean economy, which depends much on exports,” Sogang University economics professor Kim Young-ick told UPI.
“As a result, the country is highly likely to face an economic slowdown this year. I project that the growth rate for 2025 will be around 1.3%,” he said.
In response, the country is pulling out all the stops to grapple with the challenges.
The government asked for the National Assembly to approve an extra budget amounting to $8.6 billion. The unicameral parliament is slated to give a green light to it later this month.
A new administration, set to begin on June 3, is also expected to come up with various policies to boost the sluggish economy. A new head of state will replace former President Yoon Suk Yeol, who was impeached in March due to his martial law declaration late last year.
“Beginning in early June, the new president will carry out a range of measures to stabilize the economy,” Seoul-based consultancy Leaders Index CEO Park Ju-gun said.
“However, I am not confident those steps will have a major impact, especially while the global economy continues to suffer under U.S. tariffs,” he added.
Analyst Kim Seok-hwan from Korea’s leading brokerage house Mirae Asset Securities concurred.
“In addition to the new government’s stimulus measures, we expect the Bank of Korea to cut its policy rate at least twice this year, or by 0.5% points,” Kim said in a phone interview.
“The country will push hard to generate a positive momentum at a time when the global economic conditions remain fragile,” he noted.
South Korean companies have also shifted to emergency mode, as demonstrated by an unexpected collaboration between long-time rivals Hyundai Motor and POSCO.
Hyundai Motor signed a memorandum of understanding with POSCO Monday to cooperate on the former’s plan of building a $6.8 billion steel plant in the U.S.
Hyundai Motor is the parent company of the country’s No. 2 iron maker Hyundai Steel, while POSCO is the industry leader. Previously, the two have hardly ever cooperated.
“Hyundai Motor Group had been considering building a steel plant in the U.S. as the automaker ramps up vehicle production there. But Trump’s tariff threats accelerated that decision,” Daelim College automotive professor Kim Pil-soo commented.
“Its partnership with POSCO makes sense because they can share costs and reduce risks. From the perspective of POSCO, a U.S. production base is critical. Without the threat of tariffs, however, this collaboration would not have happened,” he said.
