This study analyzes the effects of the U.S.-China trade war on third-country exports to the U.S. and China, focusing on South Korea. Using tariff change data that occurred during the 2018~19 US-China trade war, it estimates product-level elasticities of substitution, i.e., tariff cross-elasticities, and investigates their determinants across countries, industries, and products. This analysis elucidates the heterogeneous effects of the trade war, informing policies to seize new export opportunities amid ongoing global trade fragmentation. The results show that Korea’s tariff cross-elasticities toward the U.S., relative to U.S. tariffs on Chinese imports, were generally positive, implying that higher U.S. tariffs tend to boost Korean exports to the U.S. In contrast, the elasticity toward China, relative to Chinese tariffs on U.S. imports, was negative on average, suggesting that increased Chinese tariffs tend to reduce Korea’s exports to China. Comparing predicted and actual export changes reveals a potential underestimation bias in the regression model. Decomposing the determinants of tariff cross-elasticities into country, industry, and product factors reveals the significance of country-specific elements for exports to the U.S. and China, with industry factors also exhibiting relevance for exports to the U.S. In the case of Korea, tariff elasticities were higher in high-tech, capital-intensive, or export-integrated industries. Additionally, analysis of Korean manufacturing shows that industries with economies of scale reduced production costs and expanded output during the trade war. Zooming into factors for economies of scale, capital-intensive industries with prior investments saw increased value-added, expanded investment, and lower costs. Export-integrated industries exhibited similar positive outcomes. Lastly, simulations based on the estimated elasticities project that four U.S.-China tariff scenarios increase Korea’s exports to the U.S. by 0.1% to 7.0%, depending on the extent of U.S. tariff changes on Chinese imports. In a severe scenario where both countries impose roughly 10%p additional tariffs on all bilateral imports, Korea's exports are projected to rise by about 4.7% to the U.S. and 9.1% to China. These findings inform policy decisions for Korea to navigate global trade changes, such as the U.S.-China trade war, by prioritizing targeted support for high-tech and capital-intensive industries and bolstering investment and export infrastructure to enhance resilience and capture emerging export opportunities.

□ The US-China trade war is propagating uncertainties within the global trade order, weakening global value chains and the WTO system. These uncertainties pose a considerable threat to the Korean economy which is heavily dependent on foreign trade. To tackle this, the Korean government needs to positively consider joining the CPTPP and make efforts to improve the effectiveness and efficiency of policies for the materials and components industries as well as export support. - The US-China trade conflict is generating uncertainty over the global trade order and economic prospects. - This study compares and analyzes the impact of the US-China trade war on major manufacturing countries and presents the policy countermeasures for Korea. - The trade war between the US and China is already having a tangible impact, particularly on major exporting countries such as Germany and Korea, weighing down on their GDP growth. - Mounting uncertainties in the global trade environment and growing trade protectionism pose a great threat to Korea as its economy is heavily dependent on manufacturing exports. - Compared to Germany and Japan, Korea is likely to experience more negative effects from the trade war due to its export structure. - The US-China trade conflict could directly/indirectly reduce Korea's exports, which in turn, could lead to a fall in GDP. - The analysis found that due to the differences in export volume and exportto-GDP ratios between the two countries, China is likely to be hit far harder than the US as a result of the intensifying trade disputes. - Most of the negative impact on the Korean economy from the trade war derives from the reduced exports to China. Also, the electronics and chemical industries were hit hard. - The US’ trade policies are highly likely to disrupt the WTO trading system and GVCs. Korea’s future policies need to focus on responding to the changes in the global trade order, including the weakening of the WTO system and GVCs and ensuing fall in global trade volume. - Korea’s accession to the CPTPP is a necessary approach to reduce its dependence on exports to China. - Japan’s export restriction on Korea is a testimony of the weakening WTO system due to the abuse of the national security exception clause. - To cope with a weakening WTO system and GVCs, efforts should be made to increase the effectiveness and efficiency of support policies for the material and parts industries. - There should be efforts to improve the effectiveness and efficiency of the export support policy which is needed to alleviate Korea’s high concentration of export products and destinations.

□ Many expect that the trade war between the US and China will persist, and East Asia’s global value chains will undergo a significant transformation in the mid- to long-term, as China’s contracts while that of ASEAN expands. Accordingly, to effec-tively respond to the coming changes, Korea should adopt proactive strategies to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and attract quality FDI in an effort to realize sustainable growth. - Biden’s trade policies highlight fair trade, which indicates that the US will maintain its hardline stance toward China. - The policies of the new administration could drive the transformation of East Asia’s GVCs. - It is too early to tell if China’s trade will remain sluggish. But, from a midto long-term perspective, East Asia’s GVCs will likely undergo some change due to China’s trade depression and diversion. - Statistics confirm the structural changes in China which could diminish its share of East Asia’s GVCs. - The US strategy of remodelling GVCs around itself, particularly in future technologies like 5G and AI, will likely have a huge impact on East Asia’s GVCs, especially in the electric/ electronic industry which accounts for 25% of China’s imports and exports. - The CPTPP’s rules of origin could change the GVCs in East Asia via the trade diversion effect. - Concerns over sensitive issues related to the CPTPP, such as market openness, policy loans, and fisheries subsidies are largely based on weak arguments. - The longer Korea remains a non-member of the CPTPP, the bigger the decline will be in its exports. Accordingly, Korea must at least join the agreement before China. - Attracting prime FDIs can serve as an effective policy to raise the investment necessary for sustainable growth. - The US-China trade war presents Korea with an opportunity to attract more high-qualtiy FDIs. - To take advantage of this opportunity, concession schedules in the Korea-China FTA should be pushed up. - In the Korea-China FTA, the share of products subject to a five-plus-year tariff phaseout is relatively high in most industries. - Joining the CPTPP is another effective policy to attract quality FDIs. - A strategy to attract quality FDI is needed to drive the success of the ‘Korean New Deal’ initiative. - From an economic policy perspective, the ultimate goal of trade liberalization is to improve the productivity of the overall economy which can be achieved through trade agreements such as the CPTPP. - The fallout from firms exits due to the high level of trade liberalization should be not countered with trade policy, but with welfare policy. - The emphasis of trade adjustment assistance should be placed on supporting workers. Meanwhile, agricultural policy should focus on preserving the income of farmers and strengthening their competence through a public-purpose direct payment system.

GDLN Videoconference ㅁ Title　　 : Global Trade Facilitation: Trends and challenges ㅁ Date　　 : April 9 (Wed), 2014, 11:30~14:00(Seoul Time) ㅁ Venue　 : KDI School, Videoconference #303 ㅁ Hosted by : Asia-Pacific Finance and Development Center(AFDC), The World Bank, KDI School and Tokyo Development Learning Center(TDLC) Background As the economic globalization goes in depth, the developing countries, which account for over 40 percent of the global trade, are playing an increasingly important role in global economy and trade. Since the financial crisis, the global economic and trade pattern has been readjusted, and new rules of global trade, which pursue higher liberalization in business operation, investment and services, and emphasize more on fair competition and protection of rights and interests, has been established. The new pattern may to a large extent reshape the external environment of the emerging economies and reconstruct the global economic value chain, and thus may again repel the emerging economies, including China, to the edge of the international trade system. Emerging economies are therefore confronted with severe challenges to establish more reasonable economic and trade policies for the purpose of playing an even more active role in the global economy and boosting sustainable local economic development. In recent years, China witnessed a rapid growth in its foreign trade. In 2012, China has surpassed the US to become the world’s biggest trade country with its overall foreign trade volume reaching $3.87 trillion. However, like the other developing countries, China lacks diversity in its foreign trade structure and received limited sharing in global value chains. Therefore, it’s of China’s top priority to further develop trade in services and enhance its level of investment liberalization to be further integrated into the global economy and contribute to its economic and structural transformation and upgrading. The Asia-Pacific Finance and Development Center (AFDC) is established by the Chinese government aiming to strengthen institutional capacity building in the areas of finance and development for the developing economies in the Asia-Pacific region. Objective In order to summarize and share experience on“the New Pattern of Global Trade”, AFDC plans to launch a series of VC seminars in 2014 in collaboration with the World Bank and other GDLN affiliates to cope with opportunities and challenges for the emerging economies.

KDI-World Bank Planet Vice Presidency Joint Session and MOU Signing Ceremony Held On May 7, 2026, KDI hosted a joint session and Memorandum of Understanding (MOU) signing ceremony with the World Bank Planet Vice Presidency. The event was organized to strengthen the foundation for cooperation between KDI and the World Bank and to discuss directions for joint research and policy collaboration on global development agendas, including climate change, environment, and sustainable development. The event was attended by KDI President Se Jik Kim, World Bank Planet Vice President Guangzhe Chen, and officials from both institutions, who also exchanged views on potential areas for future collaboration. During the session, Dr. Jungwook Kim, Executive Director of the Center for International Development (CID) at KDI, introduced KDI and CID’s major research activities and international development cooperation programs. Dr. Yeochang Yoon, Fellow at KDI’s Division of Industry and Market Policy, delivered a presentation titled “Market Design for Climate and Energy Policy,” introducing his research on institutional mechanisms and market structures for climate and energy policy, including emissions trading systems (ETS), electricity markets, and renewable energy markets. Dr. Heehyun Rosa Lim, Associate Fellow at the same division, shared policy implications related to changes in the global trade environment and the transition toward carbon neutrality, with a focus on climate and trade issues. On behalf of the World Bank, Richard Damania, Chief Economic Advisor of the Planet Vice Presidency, presented the department’s major research achievements and policy directions in response to global environmental and climate challenges. His presentation highlighted how environmental issues such as air pollution, deforestation, and water crises affect economic growth and development, while emphasizing the importance of integrated policy approaches and international cooperation for addressing climate change and achieving sustainable growth. He also introduced potential areas for expanded collaboration between KDI and the World Bank, including joint research, workshops and conferences, and staff exchange programs. During the MOU signing ceremony, KDI and the World Bank reaffirmed their commitment to strengthening cooperation across various areas, including joint research, seminars, and knowledge sharing. Building on this partnership, the two institutions plan to further enhance policy research and collaboration on key global agendas such as climate change, environment, and sustainable development. Written by: Jee Hee Yoon, Senior Research Associate, Division of Development Research, Center for International Development (CID), KDI, 044-550-4424, jhyoon@kdi.re.kr

2025 KDI-CIER Seminar: Tariffs, Global Supply Chain Restructuring, and Policy Responses On 26 August, the Korea Development Institute hosted the 2025 KDI–CIER Seminar. The theme of this year’s seminar was “Tariffs, Global Supply Chain Restructuring, and Policy Responses.” Since the signing of the KDI–CIER MOU in 2023, the seminar has been conducted on a regular basis, thereby facilitating collaboration between the two leading think tanks of Korea and Taiwan to discuss the transformation of the global trade order and explore policy responses. In welcoming remarks, KDI President Dongchul Cho emphasized that the theme for this year is both timely and meaningful. He noted that trade policies and the U.S.–China trade conflict are reshaping global supply chains, which is creating significant challenges as well as new opportunities for Korea and Taiwan. He expressed his hope that the seminar would provide insights for building more resilient economic structures. President Hsien-Ming Lien of CIER also noted the positive cooperation between the two institutes. He said, “This seminar is a chance for us to share what we have been doing and what we have learned, and I hope it will help us work together more closely in the future.”     The seminar featured four presentations examining the U.S.–China trade conflict and its spillover effects from different perspectives. KDI Senior Fellow Yeongkwan Song analyzed the Trump administration’s tariff policies. He explained that their "Reciprocal Tariffs," intended to boost U.S. manufacturing and reduce trade deficits, in fact disrupted global supply chains, triggered retaliatory tariffs, and increased financial market volatility. He also noted that Korea’s trade policy now faces new challenges, including shifts in trade and investment patterns, growing dependence on critical minerals, and the need to recalibrate its FTA strategy. Shu-Fei Yang, a CIER Fellow, explained how U.S. tariffs have reshaped Taiwan’s trade structure. Since 2018, Taiwanese companies have accelerated reshoring and adopted “China+1” strategies, which led to a sharp increase in ICT exports to the United States. As a result, Taiwan’s trade surplus with the U.S. rose by 385% in 2024. She also pointed out that potential Reciprocal Tariffs and national security tariffs under Section 232 could become major challenges for Taiwan’s export industries, particularly in semiconductors, servers, and networking equipment.     KDI Fellow Heehyun Lim presented an empirical analysis of the heterogeneous impacts of the U.S.–China trade war on Korean industries. Her study found that while Korea as a whole benefited from U.S. tariffs on China, the impacts differed markedly across sectors. Capital-intensive and export-oriented industries expanded their gains by leveraging economies of scale and global networks, whereas other sectors experienced only limited or even negative effects. Based on these findings, she further emphasized the need for tailored policy support, stronger export infrastructure, and greater capital investment to enhance industrial resilience against external shocks.     Finally, CIER Fellow Chun-Yen Wu analyzed both the direct trade diversion and indirect supply chain reallocation effects of the U.S.–China trade war on Taiwan’s international trade. His analysis indicated that tariff shocks contributed not only to an increase in Taiwan’s direct exports to the United States but also to the expansion of indirect exports routed through third countries such as Vietnam and Mexico, underscoring a rerouting effect rather than a complete decoupling. He further highlighted that exports of electronic components and machinery are shifting to new assembly hubs, demonstrating the restructuring of global value chains (GVCs). The seminar underscored the significance of Korea and Taiwan sharing the common challenges posed by the U.S.–China trade conflict, while also presenting complementary perspectives grounded in their respective policy research capacities. Moving forward, both KDI and CIER reaffirmed their commitment to consolidating the foundation for cooperation by advancing joint research and academic exchanges in response to the evolving global trade environment.    Written by. Wanhee Jeon, Research Associate, Research Outcome Dissemination Unit, 044-550-4442, whjeon@kdi.re.kr