South Korea’s exports are still holding up despite Washington tariffs. Strong demand for semiconductors and autos helped keep trade steady in August.
According to customs data, South Korea’s exports edged up 1.3% in August from the corresponding period last year, moderating from July’s sharp 5.8% increase. On a working-day adjusted basis, shipments grew 5.8% once again. Imports, however, fell 4%, pushing the trade balance to a $6.5 billion surplus.
The Bank of Korea warns that tariffs could affect the country’s exports to the US
August export gains have provided a measure of relief to the economy. Even so, the export momentum may falter once front-loaded deliveries subside and semiconductor tariffs come into play.
Korean manufacturers narrowly avoided the harshest possible outcome in late July, when an agreement with Washington defused Trump’s threat of a 25% tariff . However, the agreed-upon 15% levy still marks a break from the long-standing tariff-free framework of the trade pact. The central bank even cautioned recently that the tariffs would weigh on multiple fronts—from trade to financial markets to business confidence. Exports to the US, it added, could face the steepest losses as cost pressures mount and demand cools.
According to Governor Rhee Chang Yong, export numbers were better than anticipated even as US duties rose, with semiconductors and autos leading the way, and ultimately that helped push this year’s GDP prediction up by 0.2%. However, Rhee also cautioned that the negative effects of tariffs may become more severe in future years. Nevertheless, the outlook for long-term growth in 2026 remained unchanged at 1.6%.
On Thursday, Rhee also commented, “While there are concerns about chip tariffs, the current upturn in the semiconductor cycle is lasting longer than we expected. […]If exports remain strong, it could provide additional upside for the economy.”
South Korea considers increased spending in 2026, especially for its defense budget
The Bank of Korea recently opted to keep its policy rate steady at 2.5%, saying it needed time to analyse whether imbalances in housing, credit, and currency markets were under control before resuming monetary easing. Its decision, however, was widely expected, with 22 of 23 economists in a Bloomberg survey predicting no change. As reported by Cryptopolitan, policymakers also raised their 2025 growth forecast slightly to 0.9% from 0.8%, marking the slowest pace since 2020. At the same time, they lifted their inflation outlook to 2%, up from 1.9% in May.
The central bank noted that inflation remains contained and the economy has shown modest growth. However, it warned that soaring housing prices in Seoul and rising household debt warrant close attention. Debt concerns have deepened following four rate cuts since last year, while uncertainty over US tariffs weighs on South Korea’s export-driven economy.
Nonetheless, officials plan to roll out a significantly larger annual budget to support an economy squeezed by US tariffs, rising social spending, and demographic headwinds from an aging society and record-low birth rates.
On Friday, South Korea’s finance ministry said that President Lee Jae Myung’s administration has suggested a 2026 budget of 728 trillion won, equal to about $522 billion, representing an 8.1% rise from this year, excluding extra outlays. The increase, driven partly by defense spending, far exceeds the 2.5% expansion in 2025. A finance ministry official, speaking on condition of anonymity, also claimed South Korea aims to issue a record 232 trillion won ($167 billion) of bonds in 2026 to cover government expenditures.
At a cabinet meeting on Friday, President Lee confirmed plans of budget expansion, stating, “Now is a time when an active fiscal role is needed more than ever.”
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