South Korea paralyzed in fight against President Trump’s tariffs

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South Korean companies fear the impeachment of President Yoon Seok-yeol following his failure to impose martial law this month will undermine efforts to lobby the incoming Donald Trump administration to protect exports and investments to the United States. I am doing it.

The next president of the United States has threatened to impose significant tariffs and overhaul generous subsidies on companies investing in the United States, including those of America’s allies and largest trading partners.

However, recent political turmoil in Seoul has left the movement against President Trump’s protectionism rudderless, and Mr. Yoon’s grip on power has declined, according to people involved in the lobbying effort. Due to the cancellation, the South Korean government’s diplomatic efforts are said to be “paralyzed” and “absent.” .

A representative of a conglomerate that invested billions of dollars in the United States during outgoing President Joe Biden’s term said there is “no one in the government who will represent South Korea’s interests when it is needed most.” .

The person added, “It is impossible to withdraw the investment at this point.” “We are in a hostage situation.”

Trump-related risks to South Korea’s export-dependent economy range from across-the-board import tariffs to the possible reversal of subsidies promised by Biden to South Korean chip, battery and electric vehicle makers. South Korea’s semiconductor industry is also subject to stronger US export controls to China.

The threat of trade disruption comes at a time when Asia’s fourth-largest economy is already struggling with weak domestic demand, a surge in private borrowing and increased competition from Chinese exporters.

On Wednesday, South Korean Foreign Minister Cho Tae-yeol acknowledged that diplomatic efforts had been disrupted by the political turmoil, adding: “We are fully committed to regaining momentum as soon as possible.”

Yeo Hankoo, a former South Korean trade minister who now works at the Peterson Institute for International Economics in Washington, said that even before the political crisis, “the feeling in Seoul could be described as anxiety bordering on panic.”

According to Yeo, South Korean policymakers and business leaders decided during President Trump’s first term that if South Korea did not contribute more to the preservation of both countries, they would abandon the bilateral free trade agreement and move away from the Korean Peninsula and the United States. He said he was “traumatized” when he threatened to withdraw his troops.

A survey of 239 companies released this month by the Korean Business Federation found that 82% expect the South Korean economy to be hurt by President Trump’s anticipated protectionist policies.

But Yeo suggested that some concerns in South Korea were “overblown” and argued that “a lot has changed” since Trump was first elected in 2016. Last year, South Korea was the largest source of foreign direct investment into the United States, with companies investing tens of billions of dollars. dollars to invest in U.S. chip and green technology manufacturing facilities.

“South Korea, perhaps more than any other country, has contributed to the resurgence of U.S. manufacturing and can make a case that it deserves to be inside the walls of Fortress USA,” Yeo said.

According to the Korea External Trade Organization, South Korea’s trade surplus with the United States in the first half of 2024 is expected to be $28.7 billion, exceeding last year’s record of $44.4 billion. may be targeted.

But an executive at a major South Korean industry group said recent conversations with those expected to take office in the Trump administration suggested existing investments would do little to sway the president-elect and his inner circle. .

“We tried to appeal to them by emphasizing the fact that South Korea is the largest foreign investor and creates a lot of jobs,” the executive said. “But we were told that doesn’t matter because Mr. Trump is interested in what Korean companies do going forward. He doesn’t want to hear what they did during the Biden administration.”

Another person familiar with South Korean lobbying said one “particular concern” is the return of Peter Navarro, Trump’s former trade envoy, as a senior economic adviser.

President Trump this month accused Navarro of “trade misconduct” by relocating production sites to avoid anti-dumping measures, accusing him of helping renegotiate “unfair trade agreements such as NAFTA and the Korea-U.S. Free Trade Agreement.” It praised South Korean conglomerates Samsung and LG for their actions.

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Analysts say the challenges already facing South Korean companies, from soaring construction, labor and childcare costs to a shortage of skilled workers, difficulty securing visas and reliable power supplies, make investment difficult. He said it was unlikely to maintain its scale. A weak Korean won and lagging demand for EVs also dampened enthusiasm.

Lee Tae-gyu, a senior researcher at the Korea Economic Research Institute (KERI), said that if President Trump’s tariffs are narrowly focused on Chinese exports, the South Korean economy may receive a slight boost, adding that South Korean companies will He cited shipbuilding, defense and petrochemicals as sectors that would benefit. .

Lee added that South Korea could also reduce its trade surplus by purchasing more U.S.-made weapons and fossil fuels.

But South Korean battery and EV makers face a nightmare scenario if President Trump reaches a grand deal with Beijing in a trade deal that allows Chinese rivals to set up their own factories in the United States. The next president has said he will consider it.

“If Chinese companies are allowed to build factories in the United States, it will be a disaster for us,” said a South Korean battery industry executive. “But even government officials don’t seem to know who to go to in Washington to express our concerns.”