South Korea's Tariff Dilemma: How 'Made in Korea' Risks U.S. Trade Sanctions

The U.S.-South Korea trade relationship, a cornerstone of economic ties in the Indo-Pacific, faces a growing complication: South Korean manufacturers are increasingly accused of exploiting loopholes in trade agreements to avoid U.S. tariffs, potentially triggering retaliatory measures. The discovery of "Made in Korea" goods breaching rules designed to prevent tariff evasion has reignited concerns about compliance, investor risk, and the fragility of bilateral trade relations.

At the heart of the issue are U.S. countervailing duties (CVDs), which target foreign goods subsidized by their governments. Under the Byrd Amendment, the U.S. Treasury can impose these duties to offset the unfair advantage such subsidies create. South Korean firms, particularly in steel and semiconductors, have long been scrutinized for receiving state support. Recent investigations, however, suggest a subtler problem: companies may be misrepresenting the origin or content of their products to avoid CVDs. For instance, a Korean steel producer might label a shipment as "value-added in Korea" when significant inputs originate from countries not subject to U.S. tariffs, thereby evading duties.

The scale of South Korea’s exports to the U.S. underscores the stakes. reveal that semiconductors, automobiles, and petrochemicals—industries heavily reliant on global supply chains—account for over 60% of total exports. These sectors are also frequent targets of U.S. trade actions. In 2022, the U.S. Department of Commerce found that certain Korean steel products had improperly avoided CVDs by using inputs from non-targeted countries, resulting in retroactive duties totaling hundreds of millions of dollars.

For investors, the risks are twofold: direct financial penalties and reputational damage. Companies like POSCO or Samsung Electronics, which derive 20–25% of revenue from the U.S. market, face potential retroactive tariffs and exclusion from government contracts. shows periods of volatility following U.S. trade rulings, suggesting markets penalize non-compliance.

The geopolitical implications are equally significant. South Korea’s compliance with U.S. trade rules is critical to maintaining its preferential access under the U.S.-Korea Free Trade Agreement (KORUS). A failure to address these breaches could lead to stricter U.S. enforcement, including higher tariffs or even the removal of certain goods from the agreement. Already, the U.S. Trade Representative has flagged "ongoing concerns" about South Korea’s trade practices in its 2023 National Trade Estimate Report.

South Korea’s response has been a mix of defensive measures and diplomatic outreach. The Ministry of Trade, Industry, and Energy has launched audits of export documentation and collaborated with U.S. agencies to clarify origin rules. However, critics argue these efforts are insufficient. A 2023 report by the Korea International Trade Association found that 15% of surveyed firms admitted to using "flexible interpretations" of origin criteria to navigate U.S. tariffs—a practice that could backfire if scrutinized.

The path forward hinges on transparency and alignment with U.S. standards. For investors, the lesson is clear: companies with opaque supply chains or reliance on tariff-sensitive exports face elevated risks. Those that invest in compliance—such as tracking inputs with blockchain-based systems or diversifying markets—may weather the storm.

In conclusion, South Korea’s "Made in Korea" strategy is at a crossroads. With U.S. tariffs accounting for an average of 3–5% on affected goods, the financial stakes are high. A failure to resolve this could cost South Korean exporters billions in retroactive duties and lost market access. Conversely, proactive compliance could solidify their position in the world’s largest economy. As the data shows, the choice isn’t just about tariffs—it’s about the durability of a $150 billion bilateral trade relationship. The next move rests with Seoul.