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U.S. tariff calculation leaves out Korea's $10.7 billion trade surplus in services

Published: 13 Apr. 2025, 15:33

U.S. President Donald Trump, center, speaks during a cabinet meeting in the Cabinet Room of the White House in Washington on April 10. [AFP/YONHAP]

U.S. President Donald Trump’s recently announced reciprocal tariffs are based solely on U.S. trade deficits in goods, excluding significant trade surpluses in services — an omission that materially alters the tariff burden placed on key partners like Korea, Japan and the European Union.

The United States posted a $66.2 billion goods trade deficit with Korea in 2024. Trump’s administration used this figure to justify a 25 percent reciprocal tariff — half the ratio of the deficit to imports ($133.1 billion), according to an analysis released on Sunday by the JoongAng Ilbo, an affilate of the Korea JoongAng Daily, using data from the U.S. Census Bureau.

However, when factoring in a $10.7 billion surplus in services, Korea’s actual trade balance with the U.S. improves significantly, and the effective tariff rate would fall to 19 percent.

Services include sectors such as travel, transportation, telecommunications, intellectual property — including film, television and music — insurance and financial services.

Similar recalculations for other trade partners show that tariffs on the EU would drop from 20 percent to 10 percent, Japan from 24 percent to 17 percent, Taiwan from 32 percent to 28 percent and Vietnam from 46 percent to 44 percent.

The Economist noted that using the same formula across services trade would allow U.S. trading partners to impose their own reciprocal tariffs.

An employee inspects stocks before they are loaded onto a container for shipping to the U.S. at Corporate Specialist’s furniture factory on the outskirts of Muar, in Johor state of Malaysia on April 11. [AP/YONHAP]

Despite a massive $1.21 trillion deficit in goods trade in 2024, the U.S. also recorded a $295 billion surplus in services. That surplus has grown sharply from $77 billion in 2000, reflecting the rising global footprint of American firms in tech, finance and digital services, according to report from The Wall Street Journal report on Thursday.

The United States has grown wealthier, the services sector has taken on a more central role in the economy, with major players now including companies like Microsoft, Alphabet and JPMorgan Chase, rather than traditional manufacturers such as Ford or General Motors, The Wall Street Journal's report said.

The administration has offered a temporary reprieve. Trump announced a 90-day delay in imposing the full reciprocal tariff rates — excluding China — with a base rate of 10 percent during the negotiation period, according to Secretary of the Treasury Scott Bessent.

"I wouldn't try to retailate because as long as you don't retailate, this is the high end of the number," Bessent said on April 2 in an interview with Bloomberg Television. "And you know I think the market could have certainty that this is the number barring retaliation. So, we've got a ceiling, and then we can see if there's a different floor."

Apple iPhone 16 are on display during the launch on Sept. 20, 2024, at the Apple Store in New York. The Trump administration has exempted smartphones, computers and other electronics from its punishing ″reciprocal″ tariffs on April 11. [AFP/YONHAP]

Countries that do not retaliate against U.S. measures can expect their final tariff rates to fall between 10 and 25 percent. However, because Korea’s initial calculation excluded the service trade surplus, it may begin with a comparatively lower hand in the negotiations to start with.

The decision to ignore the U.S. service surplus could also have repercussions for American exporters. The New York Times reported on April 2 that President Trump's tariffs could expose the United States' robust service sector to potential retaliation from trade partners.

Because services are intangible and hard to tax at the border, countries may retaliate through regulations, digital service taxes or consumer boycotts.

The EU is already preparing to use its Anti-Coercion Instrument (ACI), a legal framework introduced in December 2023, to respond to what it sees as U.S. economic coercion. European Commission President Ursula von der Leyen said the tool could be used if negotiations with the United States fail. The bloc is reportedly considering a levy on advertising revenues of large U.S. tech firms like Google, Meta and Netflix.

China, meanwhile, has issued a travel advisory for Chinese citizens traveling to the United States, including students. In 2024, 1.6 million Chinese tourists visited the United Sates, and 250,000 Chinese students enrolled in American schools.

U.S. President Donald Trump, right, talks with China's President Xi Jinping during a welcome ceremony at the Great Hall of the People in Beijing on Nov. 9, 2017. [AP/YONHAP]

A drop in tourism and education-related travel would directly affect the U.S. services account if Chinese travelers don't spend money on American airlines or book hotels. China is also reportedly reducing imports of Hollywood films — exports typically structured as licensed services.

David Weinstein, professor of economics at Columbia University, has cautioned that U.S. goods exports could face long-term challenges if foreign consumers begin to view American brands less favorably.

“When you generate bad will, it’s harder to sell stuff," he was quoted as saying by The Wall Street Journal on Thursday.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY KIM WON [[email protected]]