South Korean exporters predict a 4.9% decrease in shipments to the United States (US) in 2025 if current US tariff policies remain unchanged, according to a survey released on May 26, 2025.

The survey, conducted by Mono Research for the Federation of Korean Industries (FKI), gathered responses from 150 export-oriented firms among South Korea’s top 1,000 companies by sales.

The largest declines are expected in electrical and electronics exports, projected to fall by 8.3%. This is followed by automobiles and auto parts at 7.9%, petrochemicals at 7.2%, and general machinery at 6.4%.

Conversely, shipbuilders and pharmaceutical companies expect growth in US exports, with projections of increases of 10% and 1.6%, respectively.

Additionally, the survey revealed that 81.3% of respondents believe that tariffs will negatively impact businesses in both countries. Meanwhile, 14.7% think the measures will harm South Korean firms but benefit US companies.

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🔗 Source: The Korea Times

🧠 Food for thought

1️⃣ South Korean companies deploy investment diplomacy to counter tariff impacts

Rather than simply accepting tariff-related losses, major Korean companies are engaging in “friendshoring” by dramatically increasing US investments to bypass tariff barriers.

Hyundai Motors announced a massive US$21 billion investment in US manufacturing, including an electric vehicle plant in Georgia, representing a strategic pivot from exporting to local production 1.

This approach aligns with the Korean government’s broader economic strategy, which includes a substantial US$254 billion pledge to assist exporters and diversify markets away from the United States 2.

The investment-focused response contrasts with traditional retaliatory tariffs and demonstrates how export-oriented economies are adapting to the new trade environment through capital deployment rather than confrontation.

Such investments benefit both countries by preserving Korean companies’ US market access while creating American jobs.

2️⃣ Sector-specific vulnerabilities reveal Korean economy’s structural exposure

The stark contrast between sectors in expected tariff impact—from electrical/electronics (-8.3%) and autos (-7.9%) to shipbuilding (+10%)—highlights how trade exposure varies dramatically across Korea’s industrial landscape [original article].

South Korea’s automotive sector is particularly vulnerable because the US represents over 20% of its total automotive sales, making the new 25% auto tariffs especially damaging to its economic outlook 3.

The projected 7% decline in Korean automotive production demonstrates how tariffs impact not just direct exports but entire supply chains, including domestic parts manufacturers that depend on U.S.-bound final products 3.

Steel exports already experienced a substantial 24% drop in March 2025 following the implementation of tariffs, providing real evidence of the immediate trade disruption 4.

This sectoral pattern reveals which industries have successfully developed alternative markets and which remain highly dependent on US demand, creating a roadmap for Korea’s necessary economic diversification.

3️⃣ The evolution of KORUS highlights deeper US-Korea trade relationship challenges

Despite the KORUS free trade agreement that was expected to increase US exports by US$10-11 billion and create 70,000 American jobs, the US trade deficit with South Korea actually increased by 75% (from US$13.2 billion to US$23.1 billion) between 2012-2017 56.

This outcome after implementing a major trade agreement reveals why current US administrations have taken increasingly aggressive tariff approaches, viewing previous trade deals as ineffective at balancing trade flows.

The persistence of trade imbalances despite formal agreements demonstrates that tariff reduction alone doesn’t address structural economic differences, currency valuations, and non-tariff barriers that shape bilateral trade relationships.

South Korean business leaders report feelings of “helplessness and anxiety” regarding unpredictable U.S. trade policies, indicating how policy uncertainty creates additional economic costs beyond the direct impact of tariffs themselves 2.

This evolving relationship reflects the broader tensions between maintaining security alliances while pursuing increasingly nationalistic economic policies, a challenge that extends beyond just Korea to many U.S. allies in Asia.

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