An official from the Bank of Korea disclosed that based on the recent ruling of the US federal court, the actual tariff rate imposed by the United States on South Korea will undergo a significant adjustment, reducing from the original 13.3% to 9.7%. This change originated from a ruling made by a US federal court on May 28 local time. The ruling prevented the tariff policy announced by US President Trump on April 2 from taking effect and ruled that Trump exceeded his authority by imposing comprehensive tariffs on countries that exported more to the United States than they imported, which was not in line with the law.
Previously, on April 2nd, the Trump administration announced the imposition of tariffs on multiple trading partners, including South Korea, citing the need to address the US trade deficit. Among them, a 25% equivalent tariff was set on South Korea. This measure has drawn high attention and active response from the South Korean side. As an economy that is highly dependent on exports, South Korea has long maintained a trade surplus with the United States. For instance, in 2023, South Korea’s trade surplus with the United States reached as high as 55 billion US dollars. This tariff adjustment by the United States is of great significance to the South Korean economy, especially for export-oriented industries. Take South Korea’s pillar export industries such as automobiles and electronics as examples. Previously, the relatively high tariff rates increased the price disadvantage of their products in the US market and suppressed the competitiveness of their products. If the tariff rate drops from 13.3% to 9.7%, the export costs of these industries will be reduced, and the prices of their products in the US market may be more attractive, which is expected to stimulate a recovery in export volume.
From the perspective of the Bank of Korea, the reduction of the tariff rate this time has, to a certain extent, alleviated the external pressure faced by the South Korean economy. The Bank of Korea just announced a 25 basis point interest rate cut on Thursday (May 29th), reducing the interest rate from 2.75% to 2.5%, the lowest level since August 2022. This is also the fourth rate cut by the Bank of Korea in the past six meetings. The monetary Policy Committee of the central bank pointed out in a statement that the interest rate cut was due to the expectation that South Korea’s economic growth would “decline significantly” while inflation would remain “roughly stable”. The reduction of tariffs in the United States, combined with the interest rate cut measures of the Bank of Korea, will help mitigate the downside risks to South Korea’s economic growth.
However, it should be noted that although the court ruling in the United States this time has a positive impact on South Korea’s tariffs, it is still unclear when and how the tariff policy will be stopped. This ruling gives the executive branch up to 10 days to complete the process of stopping the collection of tariffs. Furthermore, other tariffs imposed by the United States based on different legal sources (such as the so-called Section 232 and Section 301 provisions) are not affected, including tariffs imposed on steel, aluminum and automobiles. South Korea still needs to closely monitor the dynamic changes of the US tariff policy in the future, actively communicate and negotiate with the US side, strive for more favorable trade terms, and promote the stable development of its own economy.
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