An electronic signboard at a dealing room of Hana Bank in Seoul shows the benchmark KOSPI fell 2.52 percent to 2,453.95 points, Monday. The Korean currency closed at 1,467.2 won per dollar, depreciating by 14.5 won from the previous session. Yonhap

The Korean economy is facing growing risks of muted growth this year amid the escalating global trade war sparked by U.S. President Donald Trump's imposition of steep tariffs on America's major trading partners, according to economists and analysts, Monday.

Reflecting the concerns, the benchmark KOSPI fell 2.52 percent from the previous session before Trump's tariff announcement, and the local currency depreciated by 14.5 won against the U.S. dollar to close at 1,467.2 won per dollar.

According to market watchers, Korea's 2025 GDP growth in the worst-case scenario may slow to mid-1 percent range, which is lower than the Ministry of Economy and Finance's 1.8 percent projection and the Bank of Korea's (BOK) 1.9 percent.

Asia's fourth-largest economy has rarely grown by less than 2 percent over the years, with exceptional cases occurring only in times of crisis, such as the COVID-19 pandemic.

A more skeptical outlook for the export-dependent economy comes as Trump levied tariffs of up to 25 percent on almost all imports from Canada and Mexico, and a 10 percent tariff on goods from China in addition to other various rates of duties they already face.

These measures are being taken under Trump's protectionist policies, which became far more aggressive compared to those in his first 2017-2021 term.

The tariff against Canada suggests even close U.S. allies are no exception to punitive duties if Trump deems that they take advantage of the U.S. economy, according to experts.

"Under these circumstances, Korea should embrace the possibility of setbacks in exports, which in turn can lower the country's annual growth by up to 0.5 percent," said Shin Se-don, a professor emeritus of economics at Sookmyung Women's University.

Shin noted Korea ranks eighth on the list of countries that the U.S. has a trade deficit with.

According to the United States Census Bureau, Korea's trade surplus with the U.S. amounted to $60.2 billion as of November 2024. The figure was higher than $54.8 billion posted by ninth-ranked Canada.

In addition to the possibility of a tariff targeting Korea exclusively, experts said the country's nearshoring policy may backfire as Trump is threatening to widen the tariff war. Nearshoring refers to a business practice that involves moving operations to neighboring countries of an export destination.

The term can also be applicable to countries that are geographically distant from an export destination but closely linked in terms of supply chain.

For U.S. exports, multiple Korean companies moved their overseas plants from China to Canada and Mexico in the face of the heightening U.S.-China trade war during Trump's first term.

The products range from TVs to cars, batteries and refrigerators.

"Due to higher tariffs, the price competitiveness of these Korean goods manufactured in the two U.S. neighbors will inevitably become weaker," said Joo Won, director of the Hyundai Research Institute.

Joo speculated Korea's relocation of overseas plant operation to Vietnam is another risk for Korea's exports and GDP growth.

Vietnam posted a trade surplus of $113.1 billion with the U.S. as of November 2024, marking the third-largest among all U.S. trading partners.

"Unfortunately for Vietnam, the achievement could make it the next target for Trump's tariff war," Joo said.

With reference to retaliatory responses from Canada and Mexico against the U.S., the Korea Institute for International Economic Policy said widening international measures against the U.S. tariffs could diminish Korea's yearly global exports by up to $44.8 billion.

The amount, according to the institute, is large enough to lower Korea's annual GDP by up to 0.67 percent.

The data from Korea Development Institute (KDI) also showed Korea's GDP will drop by 0.31 percent for every 10 percent decrease on China's exports to the U.S.

China has the largest trade surplus of $270.4 billion with the U.S. among all U.S. trading partners.

Meanwhile, the stock and currency markets in Seoul reeled back from Trump's tariff announcement.

The benchmark KOSPI slid by 63.42 points, or 2.52 percent, from the previous session, to close at 2,453.95 points.

The pace of decrease more than tripled from Friday, when it retreated 19.43 points or 0.77 percent.

Major companies operating in Canada and Mexico suffered falls, including Samsung Electronics which shed 2.67 percent, and Hyundai Motor which fell 1.94 percent.

The Korean currency depreciated by 14.5 won against the U.S. dollar to close at 1,467.2 won per dollar in onshore trading. It once breached the 1,470 level for the first time in three weeks during intraday trading.