The Bank of Korea Says "If US Protectionism Strengthens, Next Year's Growth Rate Could Drop by 0.2%p"

US Protectionism Negatively Impacts Korean Economy
Increased Competition with China in Advanced Industries like AI

Economic Outlook Briefing held on the afternoon of the 28th at the Bank of Korea in Jung-gu, Seoul. Photo by Bank of Korea

It has been forecasted that if the United States strengthens its protectionist trade policies and major countries respond accordingly, escalating global trade conflicts, South Korea's economic growth rate will inevitably be negatively affected.

Trump's Tariff War Likely to Cut Our Growth Rate

On the 28th, the Bank of Korea (BOK) stated in its 'November Economic Outlook' that if the US strengthens its protectionist trade stance and major countries such as China respond, global trade conflicts will intensify, leading to a sharp contraction in global trade and increased uncertainty in trade policies.

If such a scenario materializes, the BOK estimates that South Korea's economic growth rate next year will fall by 0.2 percentage points from previous forecasts, and the inflation rate will also decrease by 0.1 percentage points.

The trade conflict scenario is expected to have a more negative impact on South Korea's economy in the year after next rather than next year. This is because the period when the Trump administration's second-term trade policies are expected to be fully implemented is not next year but the year after next.

According to the BOK's scenario, under intensified trade conflicts, South Korea's economic growth rate in 2026 could be affected by as much as -0.4 percentage points, and the inflation rate could be impacted by -0.2 percentage points.

However, the BOK also explained that it is currently difficult to predict the likelihood of such a scenario becoming reality. It is also uncertain at this time whether the Trump administration will actually impose a universal 10% tariff on all countries.

Regarding this, Park Se-jun, head of the BOK's International Comprehensive Team, stated, "If a universal 10% tariff is actually imposed, it would place a significant burden on both US inflation and growth," adding, "Unlike tariffs on China, universal tariffs may allow room for negotiation by country, so it remains to be seen whether the pledge will be fully implemented as is."

Concerning the projection of South Korea's economic growth rate at 1.9% next year and 1.8% the year after next, amid concerns about long-term low growth, it was noted that the outlook could change depending on the actual situation that unfolds next year.

Kim Woong, deputy governor of the BOK, said at a briefing on the same day, "The forecast announced today is based on assumptions compiled from currently available information, so it may change depending on whether Trump's tariff policies are implemented," adding, "It will be necessary to review this again in the February outlook next year."

Export Growth May Slow Due to Competition with China

The BOK also forecasted that South Korea's export growth will weaken due to competition with China and US protectionism. The BOK stated, "Our exports will increase as global AI (artificial intelligence) investments continue," but added, "However, the increase will slow due to China's improvement in self-sufficiency and technological competitiveness, expansion of market share, and the strengthening of US protectionism."

It is expected that South Korea's semiconductor exports will also increase as the global semiconductor industry rapidly reorganizes toward high-performance products (such as HBM) influenced by expanded AI-related investments. The BOK analyzed that the spread of IT (information technology) devices such as PCs (personal computers) and smartphones equipped with AI functions could exert upward pressure on South Korea's semiconductor exports.

The BOK expressed particular concern about the rapid advancement of Chinese technology. It analyzed, "China has already expanded its influence in the global market in our main export items and traditional intermediate goods such as steel, petroleum refining, and chemicals, and is fostering semiconductors and the 'New 3 Yang' (electric vehicles, batteries, and solar industries) as next-generation growth engines."

This content was produced with the assistance of AI translation services.