If the reciprocal tariff measures announced on August 1 take effect, there are concerns that Korea's industry could be hit across the board. This is because the manufacturing sector accounts for more than 27% of the country's gross domestic product (GDP), and the dependency on exports to the U.S. is close to 20%.
According to the National Assembly Budget Office on the 27th, the proportion of manufacturing in Korea's gross domestic product (GDP) was recorded at 27.6% as of 2023. This significantly exceeds the average of Organization for Economic Cooperation and Development (OECD) member countries, which is 15.8%.
This refers to the proportion of the real added value of manufacturing in a country's GDP. The GDP share of Korea's manufacturing sector fell slightly from 30.2% in 2015 to about 28% from 2019 to 2022, and it decreased a bit further in 2023.
Nevertheless, this is higher than traditional manufacturing powerhouses Germany (20.1%) and Japan (20.7%). It is the second highest among OECD countries, following Ireland (31.0%).
Ireland has been analyzed as having a high share of manufacturing added value due to the production of high-value-added products in sectors such as pharmaceuticals as a production base for multinational corporations. The proportion of added value in Korea's service sector expanded from 59.8% in 2015 to 63.0% in 2023.
The anticipated office noted, "While the proportion of service industries is increasing in most developed countries, Korea maintains a certain level of manufacturing share alongside service sector growth," adding, "Korea is still assessed as a country with a high share of manufacturing given the scale of its economy."
Although the service sector is growing, manufacturing remains a core pillar that underpins our economy.
Korea holds international competitiveness not only in advanced manufacturing such as semiconductors, displays, and secondary batteries but also in traditional manufacturing sectors including automobiles, shipbuilding, and steel.
Korea also has a high export share based on its manufacturing sector. As of last year, the total export share compared to GDP was 44.4%. This is more than 14 percentage points higher than the OECD average of 30.0% and exceeds that of the Group of Seven (G7) countries.
Among the G7 countries, Germany had the highest at 41.8%, followed by France (33.9%), Italy (32.7%), Canada (32.4%), and the United Kingdom (30.6%). Japan recorded 22.8%, while the United States was at 10.9%.
The share of exports to the U.S. in Korea's total export volume was 18.8% last year.
This is the third highest level compared to G7 countries. Canada's figure of 76.4% was overwhelmingly high, followed by Japan (20.0%), which was higher than Korea.
Considering the share of manufacturing and reliance on exports to the U.S., the economic impact is expected to be inevitable if the reciprocal tariff measures are realized.
The price competitiveness of Korea's key export items such as semiconductors, automobiles, and secondary batteries is likely to deteriorate rapidly, which will directly lead to a decrease in exports to the U.S. This could result in a contraction of domestic manufacturing, a reduction in corporate investment and employment, and a decline in economic growth rates.
President Donald Trump has set a 25% reciprocal tariff rate on Korea and has extended the deadline to August 1.
The Korean government is putting all efforts into last-minute negotiations before the tariff deadline. Deputy Prime Minister and Minister of Economy and Finance Chu Kyung-ho is scheduled to meet with U.S. Treasury Secretary Scott Bessent this week.