KIET said that while Seoul will be affected if there are complications with the United States and trade protectionism becomes an issue between Washington and Beijing, it will be hurt the most if China restricts imports of South Korean goods and services.

The assessment comes as China has taken steps to restrict the inflow of South Korean-made products and services after Seoul agreed last year to install an advanced US missile defense system on its soil to cope with evolving nuclear and missile threats from North Korea.

Seoul is also trying to determine possible protectionist steps that could be taken by the United States and by President Donald Trump, who has taken a negative view on free trade agreements signed in the past.

"The country's external earnings will take a hit if outbound shipments to China fall by meaningful numbers," the latest findings showed.

It said if exports from South Korea to the United States fall by 10 percent, overseas earnings will contract 1.4 percent, while a 0.9 percent dip in income can be expected if Chinese exports to the world's No. 1 economy also fall by 10 percent for whatever reason.

"South Korea is directly impacted by any moves against it by the United States and China, but it can be subject to indirect flak if there is a clash between Washington and Beijing over trade as well," KIET said.

It stressed that there is need to expand cooperation with trading partners and efforts should be made to tackle trade issues in a multinational framework. (Yonhap)