US tariffs hit South Korean exports hard in first half

US tariffs have had a serious adverse effect on overall South Korean exports, an examination of data indicates. Goods subject to sectoral tariffs showed notable declines. In addition, the heavy reliance on exports to both the US and China further complicates challenges for Korean exporters going forward.

Trade trend in 1H25: Flattish export growth, coupled with declining imports

In the first half of 2025, Korean exports were flat in value and declined 0.4% year-to-date in volume. Exports fluctuate monthly, probably related to front-loading, but slowed overall, with US tariffs having a net negative impact. Tariff-affected goods like cars and steel declined sharply. In contrast, tariff-exempted semiconductors and pharmaceuticals saw strong growth. By destination, exports to the US and China weakened notably, while exports to the rest of Asia and Europe increased.

Despite a mediocre export performance, net exports contributed positively to overall growth in the first half of 2025, mostly due to faster declines in imports. Imports fell -1.6% in value and -5.4% in volume. A sharp drop in energy and material imports was the main reason.

US tariffs hit South Korean exports hard in first half

Source: Source: KITA

Semiconductors: Solid exports so far, but could be biggest threat to Korean exports

Semiconductors account for over 20% of Korea's total exports, making them the largest segment in the country's export portfolio. US tariffs have not directly impacted global chip exports so far, and global demand for AI technology remains steady. As a result, Korean chip exports increased by 7.8% in value and 3.3% in volume year-to-date in the first half of 2025, contributing significantly to overall export figures.

However, the potential tariffs imposed by US President Trump could pose a major threat to Korean exports. Korean chip exports to the US accounted for 7% of total chip exports. China, meanwhile, remains the top destination of Korean chip exports, accounting for 30%. Thus, a tighter ban on tech exports to China may be having a negative impact on Korean exports. We already saw chip exports to China drop (-10.6 % in value, -7.9 % in volume) quite significantly in 1H25.

We also found that shipments to Taiwan, Malaysia, and India increased significantly. The rise in exports to Taiwan mainly reflects high-end high-bandwidth memory (HBM) chip shipments. The global demand for AI chips has increased over the last couple of years. However, this year, there may be some front-loading to avoid potential sectoral tariffs.

As tensions between the US and China have intensified since Trump 1.0, major semiconductor companies are increasingly shifting their manufacturing bases to Southeast Asia. In recent years, Malaysia and Vietnam have emerged as key global hubs for semiconductor back-end processing, and India has also attracted global investment in chip manufacturing.

Considering the complexity of the global semiconductor supply chain, potential tariffs imposed by the Trump administration on chips—not only in Korea but also on other major markets like Taiwan —are expected to have a significant impact on Korean exports.

Nevertheless, we maintain a measured optimism regarding chip exports. Although specific details are limited at this time, the US has indicated a somewhat more flexible stance on tariffs related to chips. For example, chip-making equipment from the European Union is exempt from sectoral tariffs, and Japan has also signalled potential reductions in tariffs on chips and associated equipment.

For the US to advance in AI technology, it will likely need to import additional semiconductor chips until domestic production capacity is established. This process may take some time. As a result, major chip manufacturers will likely be compelled to establish production facilities in the US as part of ongoing trade negotiations. This will also be part of the US-Korea deal.

Increased regional supply integration with countries other than China

Source: Source: KITA

Auto and auto parts: Most damaged by 25% tariffs

Automobiles and auto parts represent the second-largest export category, comprising 13% of total exports. Korean automobile exports are significantly concentrated in the US market, with nearly 50% of all autos and auto parts exports going to the United States.

Total auto exports decreased by 2.1% in value, but rose 5.6% in volume. The decline of car exports is concentrated in the US and Australia among the top 10 destinations. But exports to Europe and Central Asia rose solidly. Exports to the US dropped by 16.4% in value and 12.5% in volume, probably due to tariffs.

Exports to the US dropped the most while exports to Europe remained solid

Source: Source: KITA

Electric vehicles: more prominent adverse effects

Narrowing the auto exports to electric vehicles, EV exports to the US dropped by 89.1% in value and 88.8% in volume, while Canada fell by 57.1% and 55.5%, respectively. US (-89.1% value, -88.8% volume) and Canada (-57.1% value, -55.5% volume) exports fell even more significantly. Tariffs are a major factor, but increased US production—such as Hyundai's new Georgia plant—and the end of EV tax incentives are also having an impact.

Korean automobile manufacturers increased their production capacity recently, yet they possess lower production capacity in the US compared to other global competitors. This leaves them more vulnerable to tariff changes.

According to industry reports, over 55% of Toyota vehicles sold in the US are produced locally, whereas for Hyundai, the figure is less than 40%. Furthermore, the compact and mid-size SUV and hybrid markets, where price competition is fierce, could be particularly impacted if Korean auto tariffs are set higher than the 15% rate negotiated by Japan and the European Union. In such a scenario, Korean auto exports may face further disadvantages in terms of competitiveness.

EV exports dropped to the US and Canada while exports to Europe rose

Source: Source: KITA

Steels: Declining, but not solely due to tariffs

Steel exports have remained subdued in recent years, primarily due to a combination of weak global demand, China’s overcapacity, and diminished competitiveness of Korean products, rather than just tariffs. During the first half, the export value of coated and hot-rolled steel declined not only to the US, but also across other international markets. By product segment, it appears that coated steel had a lesser impact of the tariff than hot-rolled steel.

The US has a 50% tariff on steel and aluminum to protect domestic industry. Although imported goods are less competitive in price, limited domestic supply should shift costs to US consumers and businesses eventually.

Weak steel exports may reflect more than tariffs

Source: Source: KITA

Home appliances: A clear illustration of the adverse effects of US tariffs

Home appliances tend to be more sensitive to price changes and can serve as indicators of consumer demand. Home appliance exports dropped -10.7% in value and -11.7% in volume. Compared to 2024 exports, which gained 0.4% in value and 4.1% in volume, we saw a drastic change in 1H25. Exports to the US decreased by 20.6% in value and 19.7% in volume. Exports to Mexico and Canada decreased, partly due to reexports to the US and weaker consumer spending caused by tariffs. A slight rebound in home appliances is expected as tariff uncertainty eases, but weaker demand across the Americas may limit gains.

Home appliances dropped to the US, Mexico, and Canada

Source: Source: KITA

Medical products: Increasing thanks to the tariff exemption

Korean medical product exports increased steadily. Although their share of total exports is approximately 2%, the sector has demonstrated significant expansion and exhibits strong potential for further development. Biopharma rose 28.7% in value and 13.0% in volume, while cosmetic exports also grew 13.1% in value and 10.8% in volume. Biopharma products were shipped to Europe, while cosmetics gained despite a decline in China exports, accounting for 25% of total domestic exports.

The exemption of tariffs should lead to better outcomes, but it’s also associated with a more diversified range of export destinations and reduced reliance on the US and China. However, Trump will soon announce the tariffs on pharmaceuticals, thus it will likely face strong headwinds in 2H25, depending on the terms.

Medical products: Pharma rose strongly partly due to front-loading

Source: Source: KITA

Overall tariff impacts are clearly negative for Korean exports

We expect Korea to make a deal with the US before 1 August. The benchmark has been set at 15% following deals with the EU and Japan. Thus, if Korea gets a levy higher than 15%, it would cause considerable disappointment in markets in the short term. Along with the reciprocal tariffs, sectoral tariffs will be closely watched. Tariffs on cars and semiconductors will be the most sensitive areas.

It's anticipated that Korea may also be subject to reciprocal tariffs of 15% as a base case. In response, Korea plans to enhance investment in vessels in the US and increase imports of US goods, including those in the energy and agricultural sectors. The trade deal may lift uncertainty for Korean exporters, but the impact of tariffs on trade should remain negative. This is due to high export concentration on price-sensitive products and high dependence on the US exports.

We have seen a positive contribution from net exports for the first half, but we believe this is about to change. We expect domestic demand to take the driver's seat for the second half, thanks to accommodative macro policies. Despite weak exports, we expect growth momentum to pick up in the second half supported by cash payouts and increased government spending. We believe that the Bank of Korea would also support growth by cutting its policy rate. We expect a 25 bp cut in October, depending on how the BoK assesses the trade impact and monitors housing market trends. Yet, if the trade deal turns out to be more hostile to Korea than other competitors, this may prompt a quicker BoK cut. 

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