South Korea cuts economic growth projection amid Trump's tariff threat

South Korea, on Tuesday, February 11, 2025, experienced a significant downgrade in its economic growth forecast by the Korea Development Institute, reflecting concerns over the trade policies of U.S. President Donald Trump. For the second time in four months, the think tank revised its projections, now estimating a growth of 1.6% in 2025, which is notably 0.4 percentage points less than previously anticipated. This adjustment has been attributed to the deteriorating trade environment following Trump's inauguration, particularly in relation to the ongoing tariff increases targeting multiple countries, including China. The political situation in South Korea adds another layer of complexity to the economic outlook. The country is currently facing political instability stemming from the impeachment and criminal indictment of President Yoon Suk Yeol, who had imposed martial law briefly in December. This turmoil has contributed to weakened domestic demand, as consumer spending dwindles and the job market declines. Additionally, key industries, with the exception of semiconductors, are struggling to maintain export momentum, signaling potential long-term challenges for economic recovery. Analysts at the KDI warned that should Trump intensify his tariffs or if South Korea’s political crisis prolongs, the growth projections could be slashed further. Despite initial expectations that tariff increases would be gradual, the rapid escalation has created an unpredictable economic environment that has raised concerns among economists and industry stakeholders alike. The recent imposition of tariffs, including a proposed 25% on foreign steel and aluminum, could further complicate trade dynamics, although it is noted that steel and aluminum only account for less than 1% of South Korean exports. As the U.S. administration continues to propose tariffs on additional sectors such as automobiles, semiconductors, and pharmaceuticals, the potential repercussions for South Korea's economy could be substantial, particularly given the critical role of semiconductors in the nation's export portfolio. The Korea Development Institute's analysis highlights how intertwined the U.S. trade actions are with South Korea's economic future, reflecting broader concerns over how international trade policies might disrupt economic growth and stability in increasingly volatile global markets.