 "People walk on a shopping street in Seoul, South Korea. AP")
On Tuesday, South Korea’s leading economic think tank cut its growth prediction for the country’s economy for the second time in four months, citing concerns about the impact of US President Donald Trump’s tariff increases.
The Korea Development Institute now forecasts South Korea’s GDP to grow by 1.6% in 2025, down 0.4 percentage points from its prior projection given in November.
Kim Jiyeon, a KDI economist, stated that the “deterioration of the trade environment” following Trump’s inauguration had a significant role. South Korea is also dealing with political instability as a result of President Yoon Suk Yeol’s impeachment and criminal indictment following his brief declaration of martial law in December.
Domestic demand remains weak due to slowing consumer spending and a declining job market, and the pace of exports is slowing with most key industries aside from semiconductors struggling to find momentum, said Jung Kyuchul, who heads KDI’s macroeconomic analysis department. KDI could be further lower its growth projections if Trump’s trade actions intensify or South Korea’s political turmoil drags on, Jung said.
“In November, we assumed that Trump’s steps to increase tariffs would proceed gradually over time and wouldn’t be carried out so quickly this year, but there have already been tariff increases targeting countries like China,” Jung said in a briefing. “We expected that uncertainties would be gradually resolved after the Trump administration took office, but we are now in a situation where uncertainties have actually grown.”
Trump this week announced plans to impose 25% tariffs on all foreign steel and aluminum, following his decision last month to impose 10% duties on all Chinese imports, as he accelerates an aggressive push to reset global trade.
Impact Shorts
More ShortsJung said Trump’s steel and aluminum tariffs won’t likely have a major impact on South Korea’s economy, as those products account for less than 1% of its exports to the United States. However, Trump says he is also contemplating tariffs on cars, semiconductors and pharmaceuticals.
“Since our semiconductor exports are substantial, the economic impact would be considerable if that sector takes a hit,” Jung said.