Trump's Section 301 Tariffs Imminent... 15% Cap? How Will Korea Respond?

Expiration of Section 122 Tariffs and Shift to Section 301 Likely
"Settlement Expected Within 15% Cap Agreed by South Korea and the U.S."
"The Gap with Competing Countries Will Decide Success or Failure"

With the announcement of additional tariffs under Section 301 of U.S. trade law imminent, analysts say the fate of South Korea's exporters depends more on the gap with competing countries than the final tariff rate itself. Even if the tariff is set within the 15% cap agreed between South Korea and the U.S., there are concerns that export competitiveness in the U.S. market could weaken if the rate is higher than that imposed on Japan, Taiwan, or the European Union (EU).

The United States Trade Representative (USTR) is scheduled to announce Section 301 tariffs, which will replace the current 10% global universal tariffs expiring on July 24 (local time). Since March, the USTR has been investigating the impact of global overproduction and forced labor issues on U.S. trade. South Korea has been included in investigations for both overproduction and forced labor, with a 12.5% tariff already signaled for the forced labor component. The final tariff rate will add any additional tariff related to overproduction on top of this.

Most trade experts expect the final tariff rate to be set within the cap agreed between South Korea and the United States. Last July, the Korean government pledged $350 billion (about 516 trillion won) in U.S.-bound investment, and in return, the tariff cap was reduced from 25% to 15%. Jamieson Greer, who heads the USTR, also publicly stated earlier last month that the cap stipulated in the trade agreement would be honored.

Tae Hwang Kim, professor in the Department of International Trade at Myongji University, said, "The logic for applying forced labor or overcapacity as justification is weak when it comes to allies," analyzing, "With the exception of countries like China, there is a strong likelihood that the tariff will be set between 12.5% and 15%."

Insoo Kang, professor in the Department of Economics at Sookmyung Women's University, stated, "It appears that the U.S. is looking to quickly conclude the Section 301 investigation to cover tax revenue shortages from its tax cut policies and to keep tariff income up following the expiration of the tariffs under Section 122. It will be difficult to implement steep tariff hikes against allies, so a settlement in the range of 10%–15% is expected."

Experts consistently point out that the key factor is not the absolute figure but the gap with competing countries. Juyoung Yang, policy chief at the Korea Institute for Industrial Economics & Trade (KIET), emphasized, "While Korea’s tariff rate is important, what matters even more is the rate applied to other countries that directly compete with us in the U.S. import market. That relative price competitiveness is what really counts. We need to closely monitor the tariffs imposed on other countries."

There were also warnings that political or trade disputes could result in differentiated tariffs for different countries. Professor Kim noted, "There will not be a huge issue if the tariff is set at the same level as competing countries. However, recent issues such as the Coupang case and lobbying by U.S. big tech companies in response to domestic online platform regulations may serve as variables. This could become a pressure tactic—maintaining 15% only for Korea while reducing the rate to 12.5% for others."

Experts advised that businesses should take preemptive measures. Yang suggested, "To eliminate risk from connection to forced labor components originating in China, companies should prepare documentation such as supply chain non-involvement certificates in advance. This will help with practical customs management." Professor Kang added, "The essence of the overproduction issue is the influx of cheap Chinese goods, which makes Korea a victim as well. Instead of disrupting market order, companies should be ready with evidence that makes the causal link to losses from Chinese overproduction. This will allow for more effective responses to future U.S. investigations or challenges."

Calls were also made for a shift in pricing strategy. Professor Kim said, "Until now, companies have endured the tariff burden by absorbing it themselves or relying on inventory, but their ability to buffer these costs has run out. The only choice is to raise prices for products exported to the U.S., directly passing the tariff burden on to American consumers and companies. This will put upward pressure on prices in the U.S. and could prompt the U.S. government to reconsider its tariff policy."

Experts also highlighted the need for tailored strategies by product category, as well as diversifying trade. Professor Kang said, "For batteries and semiconductors, which are the main export sectors to the U.S., expanding local production or restructuring supply chains to the United States-Mexico-Canada Agreement (USMCA) zone should be considered. Companies should also maximize subsidies and incentives offered under the Inflation Reduction Act (IRA). In addition, the government should make concrete moves toward market diversification—such as joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—to strengthen its negotiating power with the U.S."

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