(Bloomberg) -- South Korea’s economy would likely suffer a contraction if Donald Trump returns to the White House and ratchets up tariffs against trading partners, according to a government-affiliated think tank.
Gross domestic product would shrink by as much as an estimated 0.67%, with exports reduced by $44.8 billion should Trump win next week’s election and follow through with his pledge to impose universal tariffs — at a maximum level, according to the study released Thursday by the Korea Institute for International Economic Policy.
Researchers investigated a total of 18 scenarios with varying levels of tariffs against China and other nations, with Trump’s first term as a key source of supporting material. South Korea would probably suffer less than China, Mexico, the European Union and Japan in terms of exports to the US.
South Korea is among the world’s most trade-reliant nations with its businesses embedded widely across supply chains for everything from semiconductors to automobiles to petrochemicals. China is its biggest trading partner, with its manufacturers buying intermediate goods from South Korea to be assembled into products that are then shipped elsewhere, including the US.
South Korea’s government officials have been preparing contingency plans for both possible outcomes next week, as polls show a close race between Trump and Vice President Kamala Harris. Trump has vowed to impose tariffs of as much as 60% against China, and he characterized South Korea as a “money machine” that should shoulder more of the costs for the American troops it hosts.
The KIEP study adds gloom to the outlook for South Korea’s economy next year at a time when headwinds are growing on the trade front. The nation’s GDP barely grew last quarter from the previous three-month period as exports in real terms fell, prompting the Bank of Korea to consider a cut to its annual growth projection.
The economy still could grow by as much as 0.24% with demand for South Korean products increasing if the nation alone is excluded from US tariffs, the study said, calling that a low-probability scenario.
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