South Korea’s Manufacturing Dominance Exposes Economic Risks Amid Rising US Trade Tensions

Seoul: As tensions grow over potential reciprocal tariffs from the United States, new data highlights just how heavily South Korea’s economy leans on manufacturing and exports—making it particularly vulnerable to global trade disruptions.

In 2023, manufacturing made up 27.6% of South Korea’s GDP, according to figures released by the National Assembly Budget Office (NABO) on Sunday. This ranks the country second among Organisation for Economic Cooperation and Development (OECD) nations, behind only Ireland at 31%, and well above the OECD average of 15.8%.

The report notes that unlike other advanced economies that have shifted toward service sectors, South Korea continues to rely significantly on industrial output. “Given the size of its economy, South Korea is still regarded as a country with a relatively high dependence on manufacturing,” NABO said.

Major industries such as semiconductors, electric vehicle batteries, shipbuilding, and automobiles remain the pillars of the South Korean economy, keeping the nation firmly positioned in global supply chains. However, this strength also presents a vulnerability in the face of potential tariff hikes.

In 2024, exports contributed to 44.4% of South Korea’s GDP, further highlighting the country’s dependence on international trade. That’s notably higher than the OECD average of 30%, and above Germany’s 41.8%, the highest among G7 economies. The U.S., by comparison, recorded just 10.9%.

The United States remains a crucial market for South Korea, absorbing 18.8% of its exports this year. But that trade relationship is now under strain, with the U.S. warning that unless a deal is struck by August 1, South Korean exports could face a steep 25% reciprocal tariff.

Talks are currently under way between officials in Seoul and Washington in a bid to prevent what economists fear could be a serious blow to South Korea’s export-reliant growth model.

“If the proposed tariffs are implemented, the economic consequences could be severe,” said Yang Joon-seok, an economics professor at the Catholic University of Korea. “South Korea should use its strengths in key manufacturing sectors as leverage in ongoing negotiations.”

As the deadline approaches, pressure is mounting on policymakers to protect one of the world’s most industrialized economies from a looming trade clash that could reverberate across multiple industries and global markets.