(Bloomberg) — South Korea is considering a plan to boost energy imports from the US if Donald Trump wins the election and steps up pressure on trade partners, according to people familiar with the matter.
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Officials in Seoul have spent months preparing for a Trump or Kamala Harris presidency, with greater risks expected for their trade-reliant country if Trump prevails, said the people, who asked not to be identified as discussions are private.
A key area under scrutiny is South Korea’s increasing trade surplus with America. The South Korean government may urge companies to boost their purchases of US oil and gas if the trade imbalance becomes a sticking point under a Trump presidency, according to the people. Other countries that run large trade surpluses with the US include China and Mexico.
The US election on Tuesday is shaping up to be a tight race between Trump and Vice President Harris. Policymakers around the world are trying to game out what a potential second term for Trump could mean for Washington’s foreign policy, especially since he has vowed to impose a minimum 10% tariff on all imports and increase tariffs on Chinese goods to as much as 60%.
South Korea is a key player in semiconductor manufacturing, making its cooperation important for US export control efforts against China. At the same time, Seoul depends on the presence of US troops to deter North Korea, which is strengthening its ties with Russia and sending troops to support Moscow in its war against Ukraine. North Korea fired a suspected ballistic missile early Tuesday.
Officials in Seoul have been holding meetings with businesses and think tanks in recent weeks to discuss post-US election strategies. After Trump started his previous term, South Korea rushed to find ways to boost energy purchases from the US, according to two people familiar with the matter.
The government could approach major oil importers and ask them to raise their share of US purchases, although this doesn’t always result in the expected increase, the people said. This time, geopolitical risks in the Middle East might provide extra incentive for companies to turn to the US for imports, they added.
The Asian nation relies heavily on imports for almost all of its energy needs and is home to one of the largest refinery clusters in the world. So far this year, about 11% of its gas imports and 17% of its oil imports have come from the US. SK Innovation Co. and GS Caltex Corp. are among the biggest importers.
“Energy is among a handful of products the government has more leverage over as the industry is heavily regulated and state-run corporations can drive demand,” said Austin Chang, a director at the Korea International Trade Association. “Any increases of imports from the US would likely be gradual to reconcile with existing long-term contracts with Mideast countries.”
South Korea’s trade ministry declined to comment on the government’s plans. SK Innovation and GS Caltex also declined to comment.
SK Energy Co., which operates South Korea’s biggest oil refinery, is diversifying its crude shipments due to geopolitical risks in the Middle East, while US and Canadian oil are slightly more profitable, Son Sungchul, head of strategy operation, said on an earnings call Monday. US crude makes up 20%-30% of its total imports, he said.
Just before Trump took office in 2017, South Korea’s Ministry of Trade, Industry and Energy urged the country’s oil refiners to diversify their crude purchases, saying there’s a need to improve energy security and stabilize prices.
South Korean officials are currently working with business leaders to convince US policymakers and Congress that their companies have been ramping up investment and hiring in the US over the past few years and will continue to do so, said the people.
Another concern with a Trump-led White House is the risk that Washington might abandon the trade and investment agreements between President Yoon Suk Yeol and outgoing President Joe Biden.
Trump has criticized polices under the Biden administration that offer subsidies to businesses that reduce reliance on China and increase production in the US. Companies such as South Korea’s Samsung Electronics Co. and Hyundai Motor Co. have benefited from these subsidies.
South Korea has engaged in extensive negotiations with the US over the years to secure exceptions and favors for its businesses under regulations that limit their activity with China.
Trump has made it clear during his campaign that he intends to keep pressure on South Korea, referring to the country as a “money machine” that should shoulder more of the costs for hosting American troops.
In an interview last month, Finance Minister Choi Sang-mok downplayed Trump’s comments and said South Korea would maintain its strong investment in the US regardless of the election outcome.
South Korean officials expect more policy continuity in Washington should Harris take power even though she could introduce more stringent regulations promoting clean energy, which would weigh on price competitiveness among foreign businesses, the people said.
While tariffs may hit South Korean exports directly under Trump, plans by Harris to raise corporate taxes also overshadow trade as they would weigh on US purchases from abroad, economists have said.
Most South Korean businesses expect trade barriers to rise and their earnings to take a hit after the election regardless of who wins, according to a survey released last month by the Korea Chamber of Commerce and Industry.
South Korea’s economy could shrink by as much as 0.67% if Trump wins the election and follows through on his promise to impose maximum universal tariffs, which would cut exports by tens of billions of dollars, according to a study by the Korea Institute for International Economic Policy.
A slowdown in exports would add to the uncertainties facing South Korea’s economy, barely grew last quarter, avoiding a technical recession. The data came after the Bank of Korea cut its benchmark interest rate last month, starting a policy easing cycle that officials hope will boost economic momentum.
–With assistance from Heesu Lee and Dan Murtaugh.
(Updates with scenarios for Harris win and analyst’s comments)
