Government Scrambles to Respond to U.S. Midterm Fallout... Sweeping Review of Trade and Energy

Ministry of Trade, Industry and Energy: "Difficult to predict trade policy... Closely monitoring developments in the U.S. Congress and administration"
Meeting of ministers for external economic affairs to be held on the 6th... Interagency assessment of the impact
Trump retains authority to impose tariffs despite Democratic control of Congress... Concerns over continued trade pressure

With Democrats reclaiming both the House and the Senate in the U.S. midterm elections, the government is set to assess the broader impact on the external economy, including its trade and investment strategy toward the United States. The Ministry of Trade, Industry and Energy plans to closely monitor policy changes in the U.S. Congress and administration and focus on the stable implementation of existing trade agreements between South Korea and the United States. In particular, it will activate an interagency response system to prepare for the possibility that uncertainty could spread beyond tariff policy and the $350 billion investment in the United States to international oil prices, energy supply and demand, and global supply chains. The government plans to hold a meeting of ministers for external economic affairs on the 6th to assess the impact of the midterm election results jointly with relevant ministries.

According to government ministries on the 5th, South Korea's trade authorities are closely examining how the shift in the balance of power in Congress following the U.S. midterm elections could affect trade relations between the two countries. A Ministry of Trade, Industry and Energy official said it was "difficult to predict at this point" how the U.S. trade policy stance, including tariffs, would change after the midterm elections. "We plan to closely monitor developments in the U.S. Congress and administration after the election and actively conduct outreach to ensure that trade relations between South Korea and the United States are managed stably," the official said.

The government reaffirmed its commitment to implementing the existing agreement on strategic investment in the United States. "The government plans to continue pursuing strategic investment in the United States based on the agreements between the two countries," the official said. "We will continue to communicate closely with the U.S. side and work to ensure that strategic investment in the United States contributes to stronger economic security cooperation and a stronger strategic partnership between South Korea and the United States, while expanding opportunities for Korean companies to enter the U.S. market."

The government plans to assess, jointly with relevant ministries, how the midterm election results could affect the domestic economy and industry at its meeting of ministers for external economic affairs on the 6th. A government official said, "Tomorrow's meeting of ministers for external economic affairs will include a joint assessment by relevant ministries of the impact of the U.S. midterm election results." The meeting is expected to address key external economic issues, including changes in U.S. trade policy, implementation of the investment agreement with the United States, international financial markets, and energy supply and demand.

In particular, the government is expected to prepare response measures for the possibility that trade pressure from The Trump Administration will continue. Although Democrats have taken control of both chambers of Congress, the president's executive authority to impose tariffs remains unchanged. Morgan Stanley, a U.S. investment bank, said in an analysis of the midterm elections published last month that policy directions led by the administration, including tariffs, trade policy, and deregulation, were likely to remain largely in place despite the shift in congressional power. The possibility that the president could rely even more heavily on executive powers he can exercise unilaterally, as congressional oversight intensifies, cannot be ruled out.

Accordingly, the Ministry of Trade, Industry and Energy faces a growing need to reassess tariff risks for major export products such as automobiles, steel, and semiconductors. A key variable is the possibility that the 15% tariff on South Korean-made automobiles could rise again to 25%. The United States has previously raised the possibility of increasing tariffs again while questioning South Korea's implementation of its investment agreement with the United States. With Democratic control of Congress not automatically leading to the removal of tariffs, any additional trade pressure from The Trump Administration to highlight its achievements in protecting U.S. manufacturing could directly affect key export industries, including automobiles.

Trade measures under Section 232 of the Trade Expansion Act and Section 301 of the Trade Act also require scrutiny. In a report on South Korea-U.S. trade relations published in September, the Congressional Research Service (CRS) identified tariffs on key South Korean products and the possibility of additional trade measures as sources of uncertainty in bilateral relations. It also said the U.S. Congress could examine the legal nature and implementation conditions of the investment agreement, which was concluded separately from the existing South Korea-U.S. Free Trade Agreement (FTA). The government will therefore need to address two variables at once: tariff measures by the U.S. administration and congressional oversight of the agreement's implementation.

For strategic investment in the United States, the selection of individual projects and the disbursement of funds are expected to emerge as new variables, beyond the investment commitment itself. Democrats' control of congressional committees could lead to greater scrutiny of the economic viability of investment projects selected by The Trump Administration and the appropriateness of government support. The Congressional Research Service also identified the U.S. president's authority to select investment targets and Congress's oversight role as key issues for review in connection with the South Korea-U.S. investment agreement. As a result, requests for documents on project selection criteria and fund allocation could increase, and the terms for advancing some projects could change.

For the $200 billion strategic investment in particular, the timing of disbursements and investment terms for each project will likely require closer review. Since the United States selects projects and South Korea then assesses their commercial viability before deciding whether to invest, congressional investigations in the United States or changes to government support conditions could affect assessments of project viability. If project schedules are delayed, the timing of South Korea's investment disbursements could also be adjusted. Conversely, The Trump Administration could pressure South Korea to accelerate disbursements in order to show investment results sooner.

The impact on each of the potential investment projects in the United States is also expected to vary. There is relatively broad bipartisan agreement on the policy goals of meeting rising electricity demand and strengthening energy security through the construction of new nuclear power plants in the United States, making continuity in these projects more likely. By contrast, the Alaska liquefied natural gas (LNG) development project involves large upfront investment costs, construction of a long-distance pipeline, government support, and permitting issues. Increased congressional scrutiny could therefore affect the terms for moving the project forward. The South Korean government will need to reassess the profitability and risks of each project while also considering the possibility that investment terms could change in response to U.S. policy shifts.

Meanwhile, South Korea's fiscal authorities expect the likelihood of abrupt changes in U.S. tariff and trade policy to remain limited even after the midterm elections. The shift in the composition of Congress could increase oversight of and political pressure on the administration, but tariffs and trade policy are fundamentally within the administration's authority, making it likely that existing measures will remain in place, according to the analysis.

A Ministry of Finance official said, "Investment in the United States is also an issue that enjoys bipartisan support there, so the policy direction is unlikely to change significantly as a result of the election." The official added, "However, we need to continue monitoring developments in trade and industrial policy and investment in the United States, and prepare for possible changes."

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