The Office of the United States Trade Representative (USTR) announced it will impose tariffs of up to 12.5% on South Korea, citing the country's failure to block products made with forced labor. After the Supreme Court ruling in February made it difficult to impose a 15% universal tariff, the United States has been investigating trade imbalance issues such as forced labor and overproduction to impose tariffs based on Section 301 of the Trade Act.
USTR Representative Jamieson Greer said on CNBC on Tuesday (local time), "We are investigating specific unfair trade practices in more than 70 countries," adding, "We will release the results report within a few weeks." In a separate press release posted on its website the same day, USTR also stated, "We have determined that 60 countries that have not adopted measures to ban the import of goods produced with forced labor are placing a burden on US commerce." The 60 countries include South Korea, China, Australia, India, Japan, Taiwan, the United Kingdom, and Vietnam.
The Donald Trump administration had previously imposed a 10% tariff temporarily under Section 122 of the Trade Act as a substitute, after the Supreme Court ruling nullified the universal tariff based on the International Emergency Economic Powers Act (IEEPA). However, tariffs based on Section 122 of the Trade Act can only be imposed for up to 150 days, so a new tariff framework will be needed around late July when the deadline expires.
Section 301 of the Trade Act, known as Super 301, is set to play that role. This time, "overproduction" and "insufficient blocking of forced labor product imports" are being used as grounds for activation. USTR considers 16 of the 60 countries with excessive trade surpluses with the United States to have an "overproduction" problem. Fifty-four countries were identified as not having a system to ban imports of forced labor products. South Korea falls into both categories.
The maximum tariff rate USTR has specified for countries with insufficient legal mechanisms to prevent goods made with forced labor from entering their markets is 12.5%. The United States already bans imports of raw materials, parts, and textiles made with forced labor, as well as products made from them. However, if South Korea does not sufficiently block the inflow of such goods into its domestic market, those goods could be mixed into the supply chain of Korean-made finished products. This creates unfair competition for US companies and workers, the logic goes, justifying the imposition of additional tariffs. USTR plans to lower the additional tariff to 10% if a trading partner has adopted a system banning forced labor product imports or commits to adopting one through a trade agreement.
The new tariffs to be imposed under Super 301 will not apply to imports already subject to separate sectoral tariffs under Section 232 of the Trade Expansion Act. The steel and auto industries, which are already paying 15% sectoral tariffs, had been concerned about the possibility of additional tariffs being imposed under Section 301, but they can now breathe a sigh of relief. In addition, USTR will exclude from tariffs items directly tied to US prices or closely related to economic security, such as agricultural and livestock products, key minerals, oil and natural gas, and chemical and battery raw materials.
Some are paying attention to the fact that the maximum tariff rate proposed by the United States is 12.5% rather than 15%. The universal tariff based on IEEPA imposed a uniform 15% tariff regardless of existing tariffs. This had the effect of eliminating the approximately 2.5% tariff benefit South Korea enjoyed thanks to the Korea-US Free Trade Agreement (FTA). If the universal tariff based on Super 301 is designed to add the 12.5% Super 301 tariff to the US Most Favored Nation (MFN) tariff of 2.5%, the benefits of the Korea-US FTA could be revived. A government official said, "Since no executive order has been issued yet, nothing can be confirmed," adding, "We will communicate with the US side to ensure the maximum alignment with national interests."
USTR plans to receive opinions from each country and hold public hearings until July, centered on the policy proposed that day. The Presidential Office stated, "We will actively communicate with the United States to protect the balance of interests under the Korea-US tariff agreement to the maximum extent possible."
Meanwhile, Greer also raised his voice in calling for tariffs on manufacturing powerhouses to achieve trade balance. In an article published this month in the International Monetary Fund (IMF) magazine on financial and development policy, Greer wrote, "How could South Korea, which has neither coal nor iron ore, become a steel powerhouse?" criticizing that the Korean government's intervention has caused structural trade imbalances.
