South Korea Free Trade Pact Mitigates Trump Tariffs
South Korea's free trade agreement with the United States (US) could shield it from reciprocal tariffs imposed by US President Donald Trump.
After Trump's steel and aluminum tariffs, economists at Barclays and Citi believe the free trade pact could minimize their impact on South Korea. The pact, signed in 2007 and revised in 2018, has eliminated nearly all tariffs between the two countries.
"Korea-US tariff rates are negligible at 0.003% on US exports to South Korea, mitigating the impact further," Barclays economists note.
Despite tariff concerns, South Korea's KOSPI index has risen 1%, outperforming emerging Asian markets. This optimistic sentiment reflects expectations that the domestic impact of tariffs will be less severe than initially feared.
"The US could impose reciprocal tariffs on specific Korean exports related to food products," Citi economists speculate. However, the potential impact is limited as food-related exports comprise 0.3% of total Korean exports to the US.
South Korea is one of 20 nations with comprehensive free trade pacts with the US, offering potential protection from tariffs. The country plans to respond proactively to any potential impact by providing support to affected firms and diversifying export markets.