Trump Imposes 25% Tariff Hike on South Korean Goods Over Trade Deal Dispute

The United States has increased tariffs on a broad range of South Korean imports to 25%, marking a significant escalation in trade tensions between the two allies. The decision follows Washington's claims that Seoul has failed to honour commitments made under a bilateral agreement reached months earlier.

The tariff increase applies to multiple product categories, including motor vehicles, timber, pharmaceutical goods, and various other imports subject to reciprocal duties. Washington has justified the move by pointing to what it describes as insufficient progress in South Korea's domestic approval process for the trade arrangement.

According to the White House, American authorities have already implemented tariff reductions in accordance with the terms negotiated, whilst South Korea's legislative body has been slower to ratify the agreement. The October deal included a commitment from Seoul to channel $350 billion into American economic projects, with a portion earmarked for maritime construction initiatives.

South Korean officials have indicated they were not formally notified of the tariff adjustment before it was announced publicly. Authorities in Seoul are now seeking urgent dialogue with Washington to address the matter. Kim Jung-kwan, South Korea's Industry Minister, is expected to travel from Canada to meet with Howard Lutnick, the US Commerce Secretary, in the coming days.

The trade relationship between the two nations is substantial. South Korea shipped approximately $123 billion worth of goods to the United States last year, making America its second-largest export destination after China. Automotive exports alone represented roughly $30 billion of that total.

Financial markets reacted with initial concern before stabilising. Shares in South Korean automotive manufacturers Hyundai and Kia dropped by as much as 6% following the announcement but recovered to close the trading session down approximately 1%. The Kospi, South Korea's primary stock index, erased early declines to finish 2.7% higher.

Market observers have suggested that investors remain doubtful whether the threatened tariff increase will ultimately be implemented. Recent policy reversals, including the withdrawal of additional duties on European nations over a separate diplomatic dispute, have contributed to scepticism about follow-through on such threats.

The bilateral agreement was formally submitted to South Korea's National Assembly in late November and remains under parliamentary review. Domestic reports indicate the legislation is expected to gain approval next month. Under the terms negotiated, the United States agreed to reduce certain tariffs once Seoul initiated its domestic approval procedures.

Tariffs function as taxes paid by importing companies. In this instance, American businesses purchasing South Korean goods would bear the cost of the 25% levy.

The current administration has repeatedly employed tariff policy as a diplomatic tool. Recent examples include threats of 100% duties on Canadian goods if Ottawa pursues trade arrangements with Beijing, and proposed import taxes on multiple nations over opposition to American territorial ambitions. In each case, the tariffs have been framed as leverage to achieve broader foreign policy objectives.

Industry Impact and Market Implications

The tariff increase poses immediate challenges for South Korean automotive and industrial manufacturers with significant exposure to the American market. Companies such as Hyundai and Kia, which collectively export billions in vehicles annually, face potential margin compression if the duties are sustained. However, the muted market reaction suggests investors anticipate either a negotiated resolution or policy reversal before implementation.

For American importers, particularly automotive distributors and pharmaceutical companies, the levy would increase procurement costs. These additional expenses could either erode profitability or be passed through to consumers via higher retail prices, depending on competitive dynamics and demand elasticity.

The semiconductor and electronics sectors, whilst not explicitly mentioned in the tariff announcement, could face indirect effects given South Korea's position as a major supplier of components and finished goods. Any prolonged trade friction may encourage companies to diversify supply chains or accelerate nearshoring initiatives.

More broadly, the episode highlights the unpredictability surrounding trade policy enforcement under the current administration. Industries with cross-border supply chains may face heightened planning uncertainty, potentially deterring long-term capital investment decisions until clearer policy frameworks emerge.