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Korean economy in doldrums amid weak domestic demand, U.S. tariff uncertainty: KDI

Published: 08 Jul. 2025, 13:43

U.S. President Donald Trump delivers remarks on tariffs in the Rose Garden at the White House in Washington on April 2. [REUTERS/YONHAP]

The Korean economy remains subdued amid weak domestic demand and worsening external uncertainties stemming from the United States' aggressive tariff policy, among other factors, a state-run think tank said Tuesday.

"The Korean economy remains at a similarly subdued level as in the previous month. Construction remains depressed, while manufacturing is experiencing a downturn, dampening production growth," the Korea Development Institute (KDI) said in a monthly economic assessment report.

Despite strong chip sales in the global market, the overall exports to the United States weakened, particularly in such sectors as vehicles affected by the U.S.' aggressive tariff policy, resulting in slower growth in manufacturing production, the think tank said.

"While consumer sentiment is on the mend, pointing to a possible improvement in domestic demand conditions, trade-related uncertainty remains elevated with the expiry of the U.S.' mutual tariff suspension approaching," the KDI added.

In June, Korea's exports rose 4.3 percent from a year earlier to $59.8 billion thanks to strong global demand for semiconductors.

But exports to the United States slid 0.5 percent to $11.24 billion amid the Donald Trump administration's sweeping tariff measures.

In April, Trump began imposing reciprocal tariffs on partner nations, including 25 percent duties on Korean goods, though the new tariff scheme was paused shortly afterward to allow for bilateral negotiations until July 8.

Trump said Monday that his government will impose 25 percent tariffs on all Korean products starting on Aug. 1, effectively extending this week's negotiation deadline and allowing more time for Seoul to reach a trade deal.

A separate 10 percent baseline tariff, and 25 percent duties on steel, aluminum and auto-related products remain in place.

Industrial production fell 1.1 percent on-month in May, continuing its downward trend for a second month.

Facility investment dropped 4.7 percent over the cited period, marking three months of decline, while retail sales, a gauge of private spending, remained unchanged, government data showed earlier.

Yonhap