Policy Directions and Future Outlook
for Trump’s Second Term

Since President Trump’s inauguration on January 20, the US has been pursuing rapid changes in domestic and foreign policy. On the first day of his term, approximately 100 executive orders and memoranda were announced, and the number of executive orders signed within the first month increased nearly fivefold compared to the same period in Trump’s first term. President Trump has been swiftly implementing his “America First” campaign promises to present a bold policy agenda across all areas of governance. With significant reverberations being felt not only in the US but also across the global order, this report examines the key policy directions of Trump’s second term, focusing in detail on trade policies that are expected to have the greatest impact on the Korean economy.

Impact of Trump’s Second-Term Trade Policies

Unlike Canada, Mexico, and China, South Korea has not yet been directly targeted in tariff disputes. However, considering the significant recent increase in South Korea’s trade surplus with the US, it may be difficult for South Korea to avoid becoming a target of the Trump administration’s trade policies. After the April 1 deadline for submitting reports on trade issues specified in the presidential memorandum on “America First Trade Policy,” more concrete trade measures against South Korea are expected to emerge. The general impact of the announced tariff policies so far can be outlined as follows:

Tariffs on Canada, Mexico, and China

Korean companies that have expanded into Canada and Mexico to benefit from the USMCA will face direct repercussions. In particular, Korean automakers operating in Mexico are heavily reliant on the US market for sales, making them highly vulnerable to increased tariffs on Mexican exports to the US. In 2023, Korean automakers’ sales in Mexico amounted to approximately $12.4 billion, with a substantial portion of that figure likely to be affected by tariffs. Meanwhile, US tariffs on these three countries will also have an indirect impact on South Korean exports. A decline in Canadian, Mexican, and Chinese exports to the US will reduce demand for South Korean intermediate goods, causing indirect damage. The extent of this impact will depend on the degree of South Korea’s participation in the global value chain (GVC) of these countries’ exports to the US. Since South Korea’s GVC contribution to China is significantly higher than its contribution to Canada and Mexico, the indirect damage from Chinese trade restrictions is expected to be much larger than from Canadian or Mexican restrictions.

Reciprocal Trade and Tariffs

From a tariff standpoint, about 98% of goods traded between South Korea and the US are currently duty-free, so South Korea is unlikely to be directly affected by reciprocal tariffs. However, Trump’s broader “reciprocal trade” agenda is expected to involve pressure on trading partners over not only tariffs but also other unfair trade practices and regulations. One notable example is the value-added tax (VAT). Trump has argued that since the US does not have a VAT, it effectively serves as an additional tax on American exports. Based on this logic, the US could impose tariffs or other trade measures in response. While the US imposes a sales tax (which varies by state) rather than a VAT, most sales tax rates are below 10%, significantly lower than the over 20% rates seen in many European countries.
Since South Korea’s VAT is 10%, lower than those of most major advanced economies, the VAT itself is unlikely to become a major source of conflict with the US. However, South Korea’s non-tariff barriers could become a key issue. The US Trade Representative (USTR) publishes an annual National Trade Estimate (NTE) report listing the non-tariff barriers of each country. The 2024 report highlights various non-tariff barriers in South Korea, including technical and service barriers, as well as intellectual property protection issues. Therefore, the US is likely to demand the removal of these non-tariff barriers under the principle of reciprocal trade. Since many of these non-tariff barriers are rooted in domestic legislation, removing them would require amendments to South Korean law. Given the political realities in South Korea, it is unlikely that a bipartisan legislative amendment will materialize swiftly. As a result, friction over non-tariff barriers is expected to persist in the future.

Trade Barriers Report 2024 (Korea Section)

Steel and Aluminum Tariffs

The Trump administration abolished the existing exemptions and alternative agreements for steel, aluminum, and derivative products as of March 12, imposing a uniform 25% tariff on steel and increasing the aluminum tariff from the existing 10% to 25%. In 2024, the US accounted for 13.1% of Korea’s steel exports and 10.5% of Korea’s aluminum exports. The burden is particularly higher for steel exports that were previously exempt from tariffs under the quota system. For aluminum, while the increase is 15%p, the actual burden rises to 25%p for companies that previously benefited from tariff exemptions. Since the tariffs apply to all countries, performance in the US market will depend on relative competitiveness. In terms of price, Korea maintains moderate price competitiveness with the average unit price for steel being $1,135 per ton, lower than the overall average of $1,310 per ton (Source: Steel Import Monitoring and Analysis System). Compared to the higher average prices in the EU, UK, Japan, and Canada, Korea is expected to maintain its competitiveness even after the tariff increase.