South Korea's Export Momentum Falters Amidst Trump Tariff Fears

South Korea's exports have weakened significantly so far in February, signaling a potential downturn for the country's economy, as reported by Bloomberg. This comes as the nation faces political turmoil and uncertainty surrounding the impact of tariffs imposed by US President Donald Trump.

Data released on Friday by South Korea's customs office reveals that the value of shipments, adjusted for working-day differences, decreased by 2.7% year-on-year in February. This contrasts sharply with the 7.7% increase initially reported for January.

In headline figures, which are distorted by the difference in working days compared to last year, exports grew by 16%, while overall imports increased by 7.7%, resulting in a trade surplus of $804 million. This shift is due to the Lunar New Year holidays, which fell in January this year, unlike last year when they were in February.

Exports to the US rose by 16%, and those to China increased by 13.6%, according to unadjusted customs data. Semiconductor shipments grew by 22.1%, while automobile exports saw a significant increase of 40.3%.

"The uncertainty is extremely high and the primary cause is the impact of Trump’s tariff policies on Korea’s export industries," said Lee Seung-suk, a researcher at the Korea Economic Research Institute, to Bloomberg. "There are considerable concerns in sectors like steel and automobiles. Unless there are measures to ease the tariffs, a decline in exports this year seems inevitable."

Exports are a major component of South Korea's economy, with semiconductors being a key driver. The global surge in demand for AI technology has benefited companies like SK Hynix Inc. and Samsung Electronics Co., which produce advanced memory chips. However, the outlook for these companies is becoming increasingly uncertain following Trump's announcement of new tax initiatives and the potential for a global trade war. The president has imposed 25% tariffs on steel and aluminum imports, effective from March, and has also announced reciprocal tariffs on numerous trading partners, expected to hit in April.

The trade risks add to the challenges facing South Korea's economy, which is already struggling with stagnant consumption and political turmoil. Following the brief imposition of martial law in December, President Yoon Suk Yeol was arrested on charges of insurrection, and the Constitutional Court is currently deliberating whether to finalize his removal from office.

In an effort to mitigate the impact of the tariffs, South Korea's deputy trade minister recently visited Washington and requested that the US exclude his country from its tariff plans. He highlighted the existing free trade agreement between the two nations and emphasized the investments South Korea has made in the US.

The weak export growth is a significant concern for the Bank of Korea, given the country's heavy reliance on trade. South Korean companies are deeply integrated into global supply chains across various sectors, including automobiles, rechargeable batteries, shipbuilding, and refined oil.