South Korea’s top economic think tank slashed its growth forecast for the country’s economy for the second time in four months on Tuesday, expressing concern about the impact of U.S. President Donald Trump’s expanding tariffs.
The Korea Development Institute now projects South Korea’s economy to grow by 1.6% in 2025, which is 0.4 percentage points lower than its previous estimate announced in November.
Kim Jiyeon, a KDI economist, said the “deterioration of the trade environment” following Trump’s inauguration was a major factor. South Korea is also grappling with political instability caused by the impeachment and criminal indictment of President Yoon Suk Yeol after he briefly imposed martial law in December.
Domestic demand remains weak due to slowing consumer spending and a declining job market, and the pace of exports is slowing with most key industries aside from semiconductors struggling to find momentum, said Jung Kyuchul, who heads KDI’s macroeconomic analysis department. KDI could be further lower its growth projections if Trump’s trade actions intensify or South Korea’s political turmoil drags on, Jung said.
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“In November, we assumed that Trump’s steps to increase tariffs would proceed gradually over time and wouldn’t be carried out so quickly this year, but there have already been tariff increases targeting countries like China,” Jung said in a briefing. “We expected that uncertainties would be gradually resolved after the Trump administration took office, but we are now in a situation where uncertainties have actually grown.”
Trump this week announced plans to impose 25% tariffs on all foreign steel and aluminum, following his decision last month to impose 10% duties on all Chinese imports, as he accelerates an aggressive push to reset global trade.
Jung said Trump’s steel and aluminum tariffs won’t likely have a major impact on South Korea’s economy, as those products account for less than 1% of its exports to the United States. However, Trump says he is also contemplating tariffs on cars, semiconductors and pharmaceuticals.
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“Since our semiconductor exports are substantial, the economic impact would be considerable if that sector takes a hit,” Jung said.