South Korea’s stock market tumbled on Feb. 3 as the U.S. intensified its tariff war against trade partners. Already grappling with a prolonged economic slowdown, Korean companies had been holding out for an export-led recovery. However, Washington’s aggressive trade measures left markets with little to cling to, triggering a sharp sell-off.
Investor sentiment, however, bounced back within a day. The market rebounded after the U.S., Canada, and Mexico reached an agreement late on Feb. 3 to postpone tariff implementation by 30 days.
Experts predict that tariff-related uncertainties will continue to weigh on the market, especially as the U.S. signals potential tariff hikes on China and the EU. However, some analysts believe Washington is unlikely to engage in a high-stakes standoff with its allies, suggesting the impact on Korean stocks may be short-lived.
The KOSPI and KOSDAQ indexes, which opened higher on Feb. 4, continued to recover, erasing the previous day’s losses. The KOSPI was up 2% as of 11 a.m., while the KOSDAQ had gained nearly 3%.
Overnight, the U.S. stock market pared earlier losses after Washington, Ottawa, and Mexico City agreed to delay new tariffs on Canada and Mexico by 30 days. Fears of fresh trade barriers had initially sent the Nasdaq Composite and S&P 500 tumbling more than 2.0% and 1.5% at the open. However, losses narrowed following the announcement, with both indexes closing down just 0.28% and 0.76%, respectively.
Investor sentiment rebounded sharply within a day, but concerns over the U.S.-led tariff war remain. After U.S. President Donald Trump signed an executive order on Feb. 1 imposing a sweeping 25% tariff on imports from Mexico and Canada, South Korea’s stock market plunged at the opening. The KOSPI dropped 2.5% and the KOSDAQ fell 3.4% on Feb. 3, wiping out 64 trillion won in market capitalization in a single day.
Large-cap stocks bore the brunt of the sell-off, particularly companies with operations in Mexico and Canada. LG Electronics tumbled 7.1%, while Kia lost 5.8%. HL Mando and POSCO Future M also sank 7-9%.
These companies have expanded into Mexico and Canada to secure access to the massive U.S. market. Until Trump’s executive order, trade among the three countries had been effectively tariff-free. With Washington tightening trade restrictions against China since Trump’s first term, Mexico and Canada had become critical footholds for Korean firms.
If the tariff exemptions for Mexico and Canada are removed, the investments Korean companies made in these countries could be wasted.
Some analysts believe the Trump administration is unlikely to engage in an extreme tariff war with its allies. On the night of Feb. 3, the U.S., Canada, and Mexico agreed to delay the tariff imposition for 30 days, just before the deadline.
However, the threat of a trade conflict is not completely gone. Unless the underlying issues behind the tariffs are resolved, tensions could flare up again at any time.
U.S. President Donald Trump has announced plans to raise tariffs on Chinese goods and impose new duties on imports from the EU, heightening concerns over the broader implications of Washington’s trade policy. “Trump is leaving room for negotiation, but for now, financial markets must brace for volatility driven by reciprocal trade measures and political factors,” said Park Seung-jin, an analyst at Hana Securities.
While the initial shock to South Korea’s stock market has subsided, the broader ramifications of the looming tariff war are already being felt. NH Investment & Securities economist Jeong Yeo-kyung has revised South Korea’s 2025 export growth forecast to 3.5%, down from the previous projection of 4%. “U.S. households rushed to purchase durable goods in the fourth quarter of last year in anticipation of tariff hikes,” Jeong said. “As a result, demand for such goods in the U.S. is expected to weaken in the early stages of the tariff implementation, posing challenges for South Korean exporters.”
Despite the uncertainty, some domestic analysts believe the impact on South Korean markets will be limited, noting that the stock market remains undervalued. While global investors are closely watching Washington’s moves, they emphasize that the situation is not severe enough to trigger a full-scale market downturn.
Several factors support this outlook. First, Trump’s second-term trade policies differ significantly from his first-term approach.
“During his first term, Trump’s administration sought to isolate China from global supply chains,” said KB Securities analyst Kim Il-hyuk. “That strategy, later continued by President Joe Biden, led to a shift in manufacturing to U.S.-friendly nations such as Mexico, Canada, India, and Vietnam. This time, however, Trump is using tariffs as leverage to pressure allies into cracking down on illegal immigration and drug trafficking while simultaneously encouraging companies to move production to the U.S.” Kim noted that such a strategy may not be sustainable in the long run.
Trump’s proposed tax cuts and deregulation efforts could also help offset the impact of new tariffs. In 2017, his administration lowered the U.S. corporate tax rate from 35% to 21%, and he has since proposed further reducing it to 15% to strengthen domestic manufacturing. Companies with major U.S. investments, such as Samsung Electronics and Hyundai Motor, could benefit from these tax incentives. Additionally, the administration has signaled plans for sweeping deregulation in the energy and financial sectors.
A portfolio manager at a South Korean asset management firm stressed that the potential benefits of Trump’s economic policies should not be overlooked. “Trump’s core policy initiatives, including corporate tax cuts and deregulation, are broadly pro-business,” the manager said. “If U.S. manufacturing activity rises, South Korean exporters could still find opportunities to offset the tariff impact.”
The manager also pointed to investment prospects in sectors poised to benefit from Trump’s policies. “Infrastructure projects and rising energy demand could boost related stocks,” he said. “Investors have multiple avenues to navigate this evolving landscape.”
