South Korea Tries to Offset 50% US Steel Tariffs to Protect Exporters

Shares of South Korean steel companies fell, with SeAH Steel Corp. down 6.3% in morning trading and POSCO and Hyundai Steel down 3%.

South Korea’s Industry Ministry announced that it will respond to the looming 50% US tax on steel products as part of its trade talks with Washington to minimize the impact of tariffs on its industry.

The country decided to make this move when US President Donald Trump announced on Friday that he would raise tariffs on imported steel and aluminum from 25% to 50% starting on Wednesday to increase pressure on global steel producers and intensify his trade battle just hours later when Trump accused China of violating the agreement they had with the US about mutually taking back the tariffs and trade restriction for crucial minerals.

The steel industry is the country’s most crucial industry, having a high impact on other sectors. It has contributed significantly to Korea’s economic development by steadily providing materials to industries including construction, shipbuilding, and automobile.

The gross domestic product (GDP) of the steel industry accounts for 1.5% of the entire industry and 4.9% of the manufacturing sector.

The steel industry has been attempting to improve its trade balance by increasing exports and becoming self-sufficient in steel production. As a result, exports increased from USD 7.6 billion in 2000 to USD 27.7 billion in 2016, representing a 5.8% increase in the country’s industry exports. In a similar vein, imports tripled from USD 6.8 billion in 2000 to USD 19.4 billion in 2016. Infrastructure investment has also grown from 1.7 trillion won in 2000 to 3 trillion in 2016.

Data from the American Iron and Steel Institute shows that last year, South Korea was the fourth-largest supplier of steel to the United States, after Canada, Mexico, and Brazil.

The Industry Ministry of South Korea stated that they had arranged an urgent meeting with the representatives from Pohang Iron and Steel Company (POSCO) and Hyundai Steel, two of the country’s largest steel producers.

Shares of South Korean steel companies fell, with SeAH Steel Corp. down 6.3% in morning trading and POSCO and Hyundai Steel down 3%.

The 50% tariffs will make it more difficult for Korean steel exporters, who have significantly avoided increasing their exports to the United States, to avoid its scrutiny, despite growing US steel prices and if there are any more increases in US steel prices, it will be a burden on the shoulders of exporting companies.  

According to trade data, despite tariffs, South Korea’s steel exports to the US increased by 12% in April compared to the year before.

When Trump became president for the second time in January, he implemented some of the first tariffs, including those on steel and aluminum. On March 12, he imposed 25% tariffs on most steel and aluminum imports entering the United States.

Industry officials stated that the tariffs backfired the original motive by raising the prices of US steel, which influenced many industries including construction, automobiles, and home appliances.

South Korea, a significant US ally, has demanded that the US waive the tariffs on steel, automobiles, and other goods during discussions with the United States.

Seoul agreed to draft a trade package by the end of the 90-day suspension on Trump’s reciprocal tariffs in July. The lack of political leadership has made it challenging for negotiators to make crucial choices.

Hyundai Steel has announced the construction of a $5.8 billion mill in Louisiana in response to the US tariffs, but the facility is not operational until 2029.

POSCO, a larger competitor of Hyundai Steel, signed a preliminary agreement in April to invest stock in the manufacturing project.