South Korea reaches trade deal with Trump

Observer

3 days ago

SEOUL, South Korea — President Donald Trump announced a trade deal with South Korea on Wednesday, putting 15% tariffs on South Korean goods, much higher than they were just a few months ago but lower than Trump had threatened.
Under the terms, South Korea will make $350 billion in investments in the United States and purchase $100 billion of liquefied natural gas. Trump said in a social media post that South Korea's president, Lee Jae Myung, would visit Washington in two weeks to make further announcements.
Trump had threatened to impose 25% tariffs on South Korea unless a deal was reached by Friday. In an important concession from Trump, South Korea's car exports will face 15% tariffs, down from the rate of 25% that the president had already imposed on cars from most of the world.
The agreement follows other trade deals that have been concluded in Asia. Although many details remain to be hammered out, the White House has announced that goods from Japan and the European Union will face 15% tariffs, the Philippines and Indonesia 19%, and Vietnam 20%. Among the Asian countries still without agreements are Malaysia, Taiwan and Thailand.
India, a key American ally, is also without a deal, and Trump threatened it Wednesday with a 25% tariff. The Trump administration and China have agreed to a truce after inflicting sharp trade penalties on one another in the spring.
Lee confirmed that South Korea had reached a trade deal with the United States. The deal 'removes uncertainty' over the country's export industries, he said in a social media post.
Of the $350 billion that South Korea has pledged to invest in the United States, Lee said, $150 billion will be dedicated to helping South Korean companies entering the American shipbuilding industry.
'There aren't that many countries that can restore the shipbuilding capacity of the U.S., particularly given that China is a strategic rival,' said Seungjoo Lee, a professor of political science and international relations at Chung-Ang University in Seoul, South Korea. 'That's why the United States and Japan included cooperation on shipbuilding in the agreement, and in terms of capacity, South Korea is in a better position.'
The rest of the funds will be used to help South Korea invest in the semiconductor, technology and energy sectors in the United States. Kim Yong-beom, the chief policy coordinator in Lee's office, said that South Korea had pushed for a 12.5% tariff 'until the very end' but Trump did not budge. 'The president said everyone is 15%,' he said at a news conference.
It's been a long road for the South Koreans, who had to restart U.S. trade talks when a new government was elected in June. Lee received a reprieve five weeks into the job, when Trump extended his original July 9 deadline for a deal to Aug. 1.
However, the country's negotiators had to compete for time with Trump administration officials who were attempting to conclude dozens of agreements at once on difficult issues such as market access for agricultural goods.
Howard Lutnick, the U.S. Commerce Secretary, said in a social media post that tariffs on South Korean automobiles would be set at 15%, a rate that matches the levy recently imposed on cars from Japan and the European Union.
He also said South Korea will 'not be treated any worse than any other country on semiconductors and pharmaceuticals.' He said U.S. tariffs on imported steel, aluminum and copper would remain unchanged.
South Korea's two semiconductor giants, SK Hynix and Samsung, have built factories in the United States with the help of subsidies granted under former President Joe Biden.
Some other large South Korean manufacturing investments have seen declining prospects after Congress canceled electric vehicle subsidies. Lee had recently met with the leaders of several of his country's largest companies to discuss what they could bring to the table. Executives from Hyundai, Samsung, and Hanwha were in Washington this week, South Korean news outlets reported.
Tami Overby, a partner at DGA Group Government Relations and previously president of the American Chamber of Commerce in Korea, said the promised new investment was a concession to the reality that tariffs would make goods shipped from South Korea less competitive in the American market.
'I don't think they have a choice,' Overby said. 'I don't think any country has a choice. This is how the president has decided to do it, and you either get on board or you pay higher tariffs.'
South Korea's economy is highly dependent on exports of goods and services, which accounted for 44% of its GDP in 2023. That's twice the rate of its neighbor Japan, another export-driven economy. South Korea ran a trade surplus of $66 billion with the United States in 2024, nearly four times what it was in 2018, when Trump revised the U.S.-Korea Free Trade Agreement.
The U.S. auto tariffs, previously set at 25% for nearly all imported vehicles, have eaten into the sales of major South Korean car brands. Profits at Hyundai declined 16% in the second quarter compared to the previous year, as the company has largely absorbed the costs of the duties so far.
U.S. officials have been pushing South Korea to balance trade with the United States, open its market to U.S. exports, and walk back proposed digital regulations that are seen as benefiting South Korean giants over American tech firms. Trump did not mention anything about digital services.
In his announcement, Trump said the $350 billion investment from South Korea would be 'owned and controlled by the United States, and selected by myself, as President,' and that South Korea 'will be completely OPEN TO TRADE with the United States, and that they will accept American product including Cars and Trucks, Agriculture, etc.'
However, Kim, a government policy official, stated that the countries had not agreed to any changes to South Korea's rules regarding agricultural imports, particularly beef and rice.
Farming is politically sensitive in South Korea, and the government has recently stated that it will draw a 'red line' and remove the country's beef and rice markets as a possible concession in trade talks.
South Korea is the largest foreign market for U.S. beef. Still, the American cattle industry had demanded that the country lift its import restrictions on beef over 30 months old, which South Korea has banned since 2008 over concerns that it could introduce mad cow disease.
Some of the issues between the allies, such as sharing defense costs, were not included in the deal, according to the South Korean government. The agreement was confined to trade issues, it said. Those other issues are expected to be discussed when the two presidents meet in the coming weeks.
Trump, who called South Korea a 'money machine' last year, has spoken about using trade negotiations as a forum for asking the country to cover more of the costs of maintaining the U.S. military presence there, which includes approximately 28,500 troops.
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