South Korea’s Economy Under Strain from U.S. Tariffs

Advanced | September 17, 2025

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A Growing Storm: South Korea Faces Headwinds from U.S. Tariffs

South Korea’s export‑dependent economy is feeling the squeeze. New data show that U.S. tariffs have begun to weaken manufacturing activity and contribute to slower economic growth. This highlights the South Korea U.S. tariffs economic impact that businesses and policymakers are struggling to manage. (Reuters)

Falling Factory Output

According to the purchasing managers index (PMI) survey, factory output has dropped for seven straight months, and new export orders are falling sharply. Businesses report that U.S. tariff policies are weighing heavily on overseas demand, deepening the South Korea U.S. tariffs economic impact on manufacturing. (Reuters)

Trade Deal Fallout and Lower Forecasts

The Bank of Korea (BoK) expects a “significant economic shock” even after South Korea and the U.S. agreed on a trade deal that set average tariffs at 15%. This is a higher rate than many had hoped, especially since South Korean exporters once benefitted from zero or very low tariffs under earlier trade rules. (Reuters)

Growth Forecasts Cut

Growth forecasts have been revised downward: the BoK now projects about 0.9% growth for 2025 and roughly 1.6% for 2026, partly due to the higher tariffs. Exports and investment are under particular pressure. (Reuters)

Policy Response and Risks

The government and BoK are responding. Seoul is considering further policy easing (including interest rate cuts) and boosting fiscal spending to offset the pressure from weaker exports. But there is concern that too much loosening could aggravate other risks, like household debt or inflation. (Reuters)

Vocabulary

Export‑dependent (adjective) – Relying heavily on selling goods to other countries.
Example: “South Korea is export‑dependent, so foreign tariffs affect it more than some larger markets.”
Headwind (noun) – Something that slows progress or growth.
Example: “Rising costs are a headwind for many businesses this year.”
Purchasing Managers Index (PMI) (noun) – An economic indicator measuring business conditions in manufacturing (above 50 = expansion; below 50 = contraction).
Example: “The PMI reading of 48.3 shows contraction in factory activity.”
Overseas demand (noun) – Demand for products from foreign (non‑domestic) markets.
Example: “Overseas demand dropped sharply after tariffs were introduced.”
Shock (noun) – A sudden severe negative event affecting the economy.
Example: “The BoK warned of a significant economic shock from the new tariff regime.”
Forecast (noun) – A prediction of future economic trends (e.g., growth rate).
Example: “Growth forecasts were revised downward due to tariff pressures.”
Policy easing (noun) – Government or central bank measures to stimulate the economy (e.g. lowering interest rates).
Example: “Policy easing may be needed to offset export losses.”
Fiscal spending (noun) – Government expenditure on public goods, services, or stimulus projects.
Example: “Seoul will increase fiscal spending to help industries hit by tariffs.”
Household debt (noun) – The total debt held by households (e.g., loans, mortgages, credit cards).
Example: “Too much stimulus could raise concerns about household debt.”
Inflation (noun) – Rise in general price levels over time.
Example: “If costs rise too fast, inflation might erode real incomes.”

Discussion Questions (About the Article)

Why are U.S. tariffs creating “headwinds” for South Korea’s manufacturing sector?
What does it mean for the PMI to be below 50, and why is that important?
How might revised growth forecasts impact government policy or corporate planning?
What are the risks of doing too much policy easing in response to economic slowing?
How can South Korea balance protecting its export industries with managing internal risks like debt or inflation?

Discussion Questions (About the Topic)

Are tariffs an effective tool for one country to protect its economy if others retaliate?
How do global trade policies affect countries that are heavily export‑oriented?
What kinds of policies (aside from tariffs) can governments use to support industries facing international competition?
Should economic forecasts be shared with the public even when they are pessimistic? Why or why not?
How do international economic pressures influence domestic policy decisions?

Related Idiom or Phrase

“Between a rock and a hard place” – being in a difficult situation with few good options.
Example: South Korea is between a rock and a hard place: it needs to protect its exporters from U.S. tariffs, but also must manage risks at home like debt and inflation.

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This article was inspired by: Reuters