South Korea approves $23.3B extra budget to counter US tariff risks

The Parliament of South Korea approved a 31.8 trillion won ($23.3 billion) supplementary budget on Friday.

The action is part of President Lee Jae Myung’s scramble to breathe life into a slowing economy and shield vital industries as trade tensions with the United States threaten to upend commercial ties.

The supplementary budget, which was passed after bitter debates and a boycott by the opposition, is greater than the government’s proposal of 30.5 trillion won. Legislators tacked additional funding for direct cash handouts and emergency aid to distressed industries.

The Finance Ministry said the new number shows the importance of falling back on more efficient support measures in light of the double risk of a slowdown in the country and international shocks.

The new relief bill is arriving at a critical time. Seoul and Washington have a deadline of July 9 to resolve closing differences on the revised US-Korea Free Trade Agreement. US President Donald Trump has warned he may impose duties on imports from major trading partners, including South Korea, should the talks fail to bear fruit.

Any move toward a reciprocal tariff increase from 10% to 25% would also seriously blow up Korean exports, such as automobiles, batteries, and semiconductors, propelling the economy.

President Lee moves to close revenue gap with stimulus budget

That bill contains a 10.3 trillion won fund to compensate for shortfalls in tax revenue. The government has been hit with lackluster corporate tax collections amid poor earnings in key sectors such as manufacturing and retail. Consumer demand is also down, putting yet more pressure on public finances.

The government will fund that mostly through borrowing. The figure will mostly be for new sovereign bond issuance, spending cuts, and reallocating existing budget lines.

Low-income families and struggling businesses will receive cash coupons and targeted relief. Additional money has also been allocated for industrial innovation, export assistance, and the creation of jobs.

Despite a boycott of the legislation by opposition lawmakers who said the package lacked long-term vision and was not transparent, the ruling party forced the bill to pass parliament. However, the passage was a major early victory for President Lee, who was sworn in only last month after a snap election win.

South Korea races to avoid US tariffs

An impending trade cliff is spurring the urgency. A temporary deal that has largely kept Korean exports outside the reach of plumped‐up American tariffs expires soon. Without a new agreement, the tariffs would automatically rise to 25% on the targeted goods.

President Trump has indicated that he may start sending unilateral tariff notices to US trading partners as soon as this weekend. That could give Seoul little time to respond or negotiate concessions. South Korea’s trade minister, Yeo Han-koo, is flying to Washington in a last-ditch diplomatic effort to ward off a worst-case scenario.

“It’s still not clear to each side what the other side wants,” President Lee said, calling the trade talks frustrating and opaque. Failing to do so could come at a heavy cost for Korean exporters regarding near-term losses, diminished competitive standing globally, and possible layoffs.

With more than 40% of GDP based on exports, Korea is extremely exposed to external shocks. If duties increase overnight, many industries, ranging from the automotive and electronics sectors to steel and shipbuilding, may lose their margins. Market analysts caution that any short-lived disruption could put a chill on GDP growth for the year and rattle investor confidence.

And the political stakes are high, too. Running for president, Lee made economic reform and inclusive growth his platform. An inability to contain the fallout from tariffs imposed by the United States could undermine his administration’s credibility early in his tenure.

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