The global economy is reeling from a tariff war triggered by the United States as the Trump administration’s hardline tariff policies in its second term have led to retaliatory tariffs from China, reciprocal tariff impositions and suspensions, and nullification rulings from the U.S. Court of International Trade (CIT), leaving the world gripped by a phobia of tariff uncertainty.

Jeffrey Schott, senior fellow at the Peterson Institute for International Economics (PIIE), and Ahn Choong-yong, distinguished professor at Chung-Ang University and former President of the Korea Institute for International Economic Policy, sat down for a special discussion organized by Maeil Business Newspaper to discuss Korea’s tariff negotiations with the U.S. and its incoming government’s policy response.

The discussion was held on the sidelines of the Jeju Forum 2025 held on Friday in Seogwipo, Jeju Island.

The following is a Q&A between Ahn and Schott.

Ahn: U.S. tariffs are becoming a critical factor in slowing Korea’s economic growth. How do you assess the situation?

Schott: The current Trump administration is prioritizing the reduction of trade deficits and the revitalization of domestic manufacturing.

The U.S. trade deficit was $1.2 trillion last year, with Mexico, Canada, the European Union, China, Korea, and Japan accounting for two-thirds of the U.S. trade volume.

Three-fourths of the U.S. trade deficit also comes from these countries. From the U.S. perspective, it is inevitable that Korea would be a priority target in tariff negotiations.

Ahn: The U.S. Court of International Trade recently ruled that all tariff executive orders issued by President Trump under the International Emergency Economic Powers Act (IEEPA) were invalid, but the higher court quickly overturned the decision.

Schott: This issue is likely to reach the Supreme Court. Regardless of the outcome, President Trump will continue to pursue his tariff policies. The U.S. could also use the Trade Act, which allows tariffs of up to 50 percent on imports for national security reasons. Even if courts strike down certain tariffs, Trump will still have many avenues to impose item-specific duties. Going forward, how the Korean government handles negotiations will be critical.

Ahn: Korea became the largest investor in the U.S. last year. In March, Hyundai Motor Group Executive Chairman Euisun Chung announced alongside President Trump at the White House a $21 billion investment plan through 2028. Yet the U.S. soon imposed a 25 percent reciprocal tariff on Korean goods. This must be a major disappointment for Korea.

Schott: I personally disagree with President Trump’s decision. The latest tariff list even includes auto parts. If tariffs increase the cost of parts, it raises production costs and reduces the added value of U.S.-made vehicles. Trump’s tariff strategy is aimed at attracting investment, but increasing import costs for necessary components discourages investment.

The inconsistency in tariff policy is problematic. Even if Trump faces setbacks in the 2026 midterm elections and Congress tries to ease tariffs, I believe he will exercise his veto to maintain the core structure of his trade policy.

Ahn: In April, Trump announced a 90-day delay in imposing reciprocal tariffs on countries with trade surpluses against the U.S. With a new government soon to take office in Korea, there is limited time left to complete negotiations. What approach should the new government take?

Schott: The new government should immediately establish contact with the White House and actively engage in negotiations. The approach should be to put everything on the table.

Korea’s strongest bargaining chips are in automobiles, shipbuilding, and semiconductors. Korea has already contributed significantly to Trump’s investment goals in the auto sector. Shipbuilding and semiconductors are also directly linked to economic security. If Korea leverages these core industries in negotiations, it could steer discussions in a favorable direction.

Ahn: Trump seems to place great emphasis on economic security, particularly in his stance toward China. Korea has world-leading capabilities in shipbuilding.

Schott: Korea’s shipbuilding and semiconductor industries are directly tied to U.S. national security. They form a crucial link between trade and security. The Korean government should clearly express its willingness to cooperate with the U.S. on economic security during negotiations.

Given that Korea’s shipbuilding capabilities are the best in the world, tying shipbuilding to U.S. defense - such as constructing naval vessels to bolster the relatively weak U.S. Navy - could help reduce tariffs. The same goes for semiconductors, which are a major strength for Korea.

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