In a recent announcement, US President Donald Trump revealed a new trade agreement with South Korea, which enforces a 15% tariff on goods imported from the nation. The deal comes just ahead of the impending Friday deadline, as South Korea raced to finalize the agreement.
Trump shared the details via a post on Truth Social, stating, “The Deal is that South Korea will contribute $350 Billion Dollars for Investments that are controlled by the United States, with selections made by me personally.”
Earlier this April, goods from South Korea faced a hefty 25% “reciprocal” tariff, but Trump decided to pause tariffs for numerous countries, a freeze that is set to lift on August 1.
South Korean President Lee Jae Myung announced the agreement on Facebook, highlighting that despite tight timelines and challenging conditions, they managed to close the deal. Lee, who only assumed office in June after his predecessor was ousted for declaring martial law, described overcoming this challenge as a significant win. “Today’s deal has reduced uncertainty regarding our export landscape,” he emphasized.
The $350 billion in the fund earmarks $150 billion specifically for shipbuilding efforts. This investment aims to support Korean companies vying for a foothold in the US shipbuilding market, with remaining funds directed toward semiconductors, secondary batteries, biologics, and energy sectors.
Although the new 15% tariff is lower than the previously considered 25%, it still exceeds the 10% minimum tariffs slapped on other nations’ goods since April.
South Korea’s economy has already suffered from the current tariffs, as evidenced by an unexpected quarter-to-quarter GDP contraction of 0.1% — the first negative indicator in four years. A 25% tariff would have deepened this economic strain.
Countries engaging in trade with the US find themselves in a tough situation: comply with Trump’s demands for release from the upcoming “worst offenders” tariff list or dig in and face likely crippling import duties.
For months, there has been a general consensus that tariffs weren’t going to revert to pre-Trump levels during his second term. Unfortunately, world leaders now confront the reality that these tariffs may rise beyond the current thresholds as well.
For instance, Trump recently raised tariffs on Brazilian imports to 50%, a 40 percentage point increase, due to President Luiz Inácio Lula da Silva’s refusal to comply with Trump’s demands regarding a trial connected to former President Jair Bolsonaro.
Additionally, imports from the European Union and Japan, which Trump has also signed recent trade agreements with, will now face the same 15% tariffs starting Friday. These agreements aim to ease existing sector-specific tariffs affecting industries like automobiles and pharmaceuticals.
In statements, Commerce Secretary Howard Lutnick noted that South Korean cars sent to the US would see a reduced 15% tariff, and they wouldn’t be treated more harshly compared to others regarding semiconductors or pharmaceutical products. Notably, steel, aluminum, and copper remain unchanged and are exempt from these new tariffs.
Lutnick also announced that South Korea intends to purchase $100 billion worth of liquefied natural gas and other energy products from the US over the next three and a half years.
South Korean Finance Minister Koo Yun-cheol, part of the trade negotiation team in Washington, emphasized the role of the $150 billion shipbuilding fund, explaining that it’s designed to stimulate new shipyard projects in the US, worker training initiatives, and overall supply chain improvements. Koo indicated this fund was tailored to align with Trump’s vision of revitalizing the American shipbuilding sector, ultimately contributing to reaching this new agreement with the US.
At a Thursday press briefing, Kim Yong-beom, head of the South Korean president’s policy team, confirmed that a meeting between Lee and Trump is being scheduled within the next two weeks.
Amidst negotiations, Kim revealed that the US strongly sought South Korea to open its agricultural market, yet Korean officials resisted, maintaining that prioritizing food security necessitated protecting domestic rice and beef markets.
Ranked as the seventh-largest source of US imports, South Korea exported $132 billion worth of goods to the US last year, prominently cars, car components, semiconductors, and electronics. Similarly, US exports to South Korea reached $66 billion, predominantly consisting of oil, gas, and industrial machinery.
The United States and South Korea have maintained numerous free trade agreements over the past 20 years, revising them on various occasions, particularly throughout Trump’s first term.
This report has been updated to incorporate further developments.
Reported in collaboration by John Liu from Hong Kong and Gawon Bae from Seoul.
