Park Chong-hoon

U.S. President Donald Trump has ushered in a new era of economic nationalism, characterized by aggressive tariffs and protectionist measures. As of March 4, he has implemented a total 20 percent tariff on all imports from China, and we expect more stringent trade policies to be announced going forward. This shift in U.S. policy raises concerns for Korea — a U.S. ally — which is militarily dependent on the U.S. and has a substantial trade surplus with the U.S., exceeding $55 billion as of 2024. However, Korea's strategic importance, economic adaptability and the evolving global landscape should help it work through these challenges and reinforce its partnership with the U.S.

Korea has demonstrated resilience amid shifting U.S. trade policies. U.S. sanctions on China under Biden's administration had led to global supply chain adjustments. Contrary to concerns, Korea's exports to the U.S. surged by 14.9 percent annually from 2020 to 2024, outpacing China's 4.8 percent export growth. In 2024, Korean exports reached a record $683.8 billion, up 8.2 percent from 2023. The semiconductor sector, which was expected to take a hit due to U.S. controls on China, contributed $99 billion to the 2024 current account surplus, tripling its 2023 contribution. These figures underscore Korea's ability to adapt and thrive amid global economic shifts.

Despite the challenges posed by Trump's trade policies, we believe the U.S.-Korea alliance will remain strong. As the U.S. seeks to diversify its supply chain away from China, Korea's leadership in semiconductors, electric vehicle (EV) batteries and high-tech manufacturing positions it as a vital trade partner. As examples of this synergy, Samsung and SK hynix are integral to U.S. technology infrastructure, with their ongoing investment in U.S. facilities. Korea hosts about 28,500 U.S. troops as a U.S. strategic defense ally in East Asia. Its shipbuilding industry is poised to support the expansion of U.S. Navy operations, offering advanced military vessels to bolster the collective security effort.

Additionally, Korea has been a significant investor in the U.S., reinvesting over 84 percent of its trade surplus into American operations since 2017. In 2023 alone, this investment generated more than 20,000 U.S. jobs, surpassing the contribution of other major economies. Continued investment in EV supply chains and artificial intelligence further solidifies Korea's role as a key economic partner.

While Trump's tariffs aim to weaken China's competitiveness, Beijing is working towards offsetting this impact by stimulating domestic consumption and investment. As China shifts towards an inward-focused growth model, its demand for imported goods — particularly from countries not directly targeted by U.S. sanctions — is set to increase. For Korea, the renewed trade tensions present both challenges and opportunities. Increased Chinese government spending on infrastructure and high-tech development will likely boost demand for Korean exports, from industrial components to consumer electronics. At the same time, if China redirects more of its manufacturing capacity to its domestic market rather than to exports, it could ease competitive pressure on Korean manufacturers, improving Korea's trade balance with China.

China is not alone in responding to Trump's trade policies. Europe has moved to align more closely with China, partly as a counterbalance to U.S. protectionism. President Xi Jinping's envoy, Lu Shaye, has actively engaged EU leaders, criticizing Trump's economic nationalism and presenting China as a cooperative trade partner. The EU has imposed levies on $28 billion worth of American goods in response to U.S. tariffs, signaling its willingness to push back against Washington's trade aggression.

This global realignment is forcing Korea to reassess its position. Closer EU-China ties could heighten competition in sectors where Korea and China overlap, such as technology and industrial goods. On the other hand, strained U.S.-EU relations could open new diplomatic and trade opportunities for Seoul. If the EU seeks to hedge against U.S. protectionism, it may strengthen its economic ties with Asia, offering Korea access to new export markets and deeper integration with the European economy.

While Korea holds strategic advantages, it must remain vigilant against political uncertainties and Trump's assertive negotiation tactics. The U.S. has already hinted at using Korea's military dependence as leverage in trade talks. Increased defense cost-sharing demands could accompany trade negotiations, making proactive diplomacy essential for Seoul. Trump's transactional approach means Korea cannot take existing trade agreements for granted, in our view.

Nonetheless, despite rising tensions, we think the core drivers of U.S.-Korea relations remain intact. As supply chains shift and geopolitical pressures mount, Washington probably needs Seoul as much as Seoul needs Washington. The U.S. cannot afford to alienate Korea while trying to reduce reliance on China. America's military presence in Asia depends on Seoul, and strengthening the alliance will likely remain a priority for U.S. policymakers. Besides, the bilateral trade and investment ties run too deep. Korean businesses are embedded in the U.S. economy, while Washington benefits from Korea's high-tech capabilities and capital investment. Trump may push for stricter trade terms, but economic realities should ultimately reinforce Korea's role as an indispensable U.S. partner.

The evolving global trade environment, marked by U.S. protectionism, China's economic maneuvers and Europe's shifting trade strategies, presents both challenges and opportunities for Korea. However, by capitalizing on its strengths, reinforcing alliances and remaining adaptable, Korea can navigate trade tensions and secure its role as an indispensable U.S. and global partner. Trump's trade tactics are likely to bring short-term pressure, but we think Korea's economic and strategic importance will prove too valuable to sideline as the dust settles. Far from being a victim of protectionism, Korea could emerge as a more integral player in shaping the future of global trade.

Park Chong-hoon is a director at the Standard Chartered Bank Korea.