Uncertainty Surrounding US Trade Policy Weighs on South Korea's Economic Growth

Strategic Insights -

The United States' trade policy uncertainty is expected to significantly impact South Korea's economic growth rate, with the Bank of Korea (BOK) estimating a potential reduction of 0.13 percentage point this year. The ongoing uncertainty under the Donald Trump administration could further lower the growth rate by up to 0.16 percentage point next year. The anticipated slowdown is largely attributed to a sharp decline in exports and investment, as heightened uncertainty discourages firms from entering foreign markets or making large-scale investments.

Key Takeaways:

  • The Bank of Korea estimates that uncertainty surrounding US trade policy could reduce South Korea's economic growth rate by 0.13 percentage point this year.
  • The ongoing uncertainty could further lower the growth rate by up to 0.16 percentage point next year.
  • The anticipated slowdown is largely attributed to a sharp decline in exports and investment, as heightened uncertainty discourages firms from entering foreign markets or making large-scale investments.
  • Private consumption is also expected to fall as households would show a stronger tendency toward precautionary savings amid economic uncertainty.
  • The Bank of Korea's latest forecast predicts the local economy to grow 0.9 percent this year and 1.6 percent in 2026.
  • The trade policy uncertainty is expected to have a negative impact on the economy, potentially dragging down growth by 0.17 percentage point in 2025 and 0.27 percentage point in 2026 if the tariff negotiations had not been concluded.
  • A Bank of Korea official noted that the heightened uncertainty in US trade policy could have a negative impact on the economy, emphasizing the need for close consultations with the US to prevent a renewed increase in US trade policy uncertainty.

Statistics:

  • 0.13 percentage point reduction in economic growth rate due to trade policy uncertainty this year.
  • 0.16 percentage point potential reduction next year due to ongoing trade policy uncertainty.
  • 0.17 percentage point potential reduction in 2025 if tariff negotiations had not been concluded.
  • 0.27 percentage point potential reduction in 2026 if tariff negotiations had not been concluded.
  • 15% tariff on South Korea imposed by the US as agreed in the July deal.
  • $350 billion investment pledge from South Korea in the US.
  • 0.9% growth rate forecast for the South Korean economy this year.
  • 1.6% growth rate forecast for the South Korean economy in 2026.

Sources:

  • Yonhap News Agency, September 1, 2025
  • Bank of Korea