The Peninsula

Trump’s Unilateral Trade Actions Ensnare Korea

U.S. President Donald Trump has spent the last six months radically reshaping trade. He has done so largely through unilateral tariff decisions that affect global supply chains and trade flows.

Two actions are particularly problematic: the president’s determination to impose “reciprocal” tariff rate increases for individual countries and the rapid expansion of products covered under sector-specific tariffs imposed for ostensible national security reasons. Both are affecting South Korean companies and creating new negotiating dilemmas for the government.

Trump originally announced a dramatic escalation of tariff rates for all goods imported into the United States on April 2. Such actions would, the president argued, reset trade patterns in directions more favorable to the United States. When markets reacted badly to the tariff decisions, Trump imposed 10 percent tariffs on all trade partners and suspended the collection of higher tariffs to allow ninety days for negotiations.

This pause period has now ended. Despite significant effort, the United States only managed to conclude trade deals with the United Kingdom, China, Vietnam, the Philippines, Indonesia, and Japan, although details on the contents of these agreements seemingly still need to be worked through. Roughly two dozen trade partners were instead handed new tariff rates via letters in early July.

The new tariff rates largely matched the original levies from April. This is true for Korea, which remained subject to a 25 percent reciprocal tariff effective on August 1, despite significant time and resources spent on dialogue with the United States.

Korea was not alone. Canada and Mexico, for example, also have comprehensive trade agreements in place with the United States that they painfully renegotiated during Trump’s first term in office.  Both countries also took negotiations over the reciprocal tariffs seriously. Both were, nevertheless, handed higher tariff assessments via letters.

A review of the tariff letters shows inconsistency in treatment. Some countries that appeared to take trade talks sincerely were given identical or even higher tariffs than originally mooted. Others that were not party to negotiations in Washington got improved tariff rates.

The revised deadline for the application of new tariff rates to August 1 has provided a brief window for governments to quickly try again to negotiate reductions in reciprocal rates prior to entry into force. But the window is short, and evidence suggests that negotiation enthusiasm and willingness to tackle alleged problems may not have made any impact.

Reciprocal rates are therefore likely to be imposed at high levels against trade partners globally.  However, the potentially larger challenge ahead, especially for Korea, is the growing list of goods moved to sector-specific tariffs.

The U.S. Department of Commerce has already imposed 25 percent tariffs against all global imports of autos and auto parts as well as steel, aluminium, and items made with these metals at 50 percent. These sectors are now covered by Section 232 determinations, which rely on national security justifications for the imposition of tariffs.

This is a different legal statute than the one Trump has used to justify his reciprocal tariffs. For the latter, Trump used the International Economic Emergency Powers Act (IEEPA) to argue that persistent trade deficits in goods constitute an emergency that can be solved via tariffs. His administration has already lost two legal cases over his use of IEEPA with an appeal currently underway. The cases over IEEPA and tariffs will be headed to the Supreme Court, where it is possible that all the reciprocal tariffs will be overturned.

The same fate is unlikely for Section 232 tariffs. The justification of national security for the imposition of tariffs means that all sector-specific tariffs imposed will likely be durable.

The list of covered sectors by Section 232 is also growing dramatically. Nine additional Section 232 cases are pending, with likely broad coverage of products at high tariff rates. These include copper, semiconductors, pharmaceuticals, heavy trucks, aerospace, critical minerals, lumber, polysilicon, and unmanned aircraft. An additional four Section 232 investigations launch soon.

Traditionally, Section 232 cases require a careful investigation over months, with ample opportunities for written input and oral hearings before any results are announced. But these timelines and processes have been dramatically shortened under this administration. Notice of the Section 232 launch for polysilicon and drones, for example, was only released in mid-July, backdated to July 1, with written comments due on August 6. A decision to proceed with tariffs could be equally swift.

Korean companies are highly competitive in most of the sectors addressed by current and future Section 232 investigations. Dramatic increases in sector-specific tariffs, with up to 200 percent rates suggested by Trump, mean that supply chains for these goods will undergo severe shocks in the near term. Even goods not sent to the United States will likely be affected, as global firms quickly pivot to new suppliers and markets.

The trade disruption seen over the first six months of the Trump administration has delivered unprecedented shocks to the global trading system. Changes are not likely to end soon, leaving Korean companies grappling with continued uncertainty over a much longer time frame than perhaps anyone might have anticipated.

 

Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation. Views expressed are the author’s alone.

Photo from The White House via Flickr.

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