🚨 US-Korea Tariff Negotiations and Our Economic Future: The Meaning and Impact of the Package Deal
Today Korean Economic News | 2025.05.07
📌 US-Korea Begin 'Package Deal' Negotiations Before July Tariff Exemption Deadline
💬 Korea and the United States will start high-level trade negotiations during the APEC Trade Ministers' Meeting in Jeju on May 15-16. Both countries are working on a 'package deal' before the mutual tariff exemption period ends on July 8. The Trump administration strengthened its 'America First' policy after taking office and imposed 25% high tariffs on Korean cars, semiconductors, and steel, but this was postponed for 90 days after bilateral negotiations. Our government plans to propose a 'big deal' that offers increased US investment in semiconductors, batteries, and biotech while requesting tariff exemptions.
1️⃣ Easy Understanding
US tariff policies are having a major impact on our economy. As the US and Korea face important negotiations, let's look at the background and meaning.
After President Trump was re-elected in January, the US strengthened its 'America First' policy and imposed high tariffs on products from many countries. They planned to put 25% high tariffs on major Korean exports like cars, semiconductors, and steel, but after the US-Korea summit, these tariffs were postponed for 90 days (April 8-July 8).
Since this exemption period ends on July 8, both countries are rushing to find an agreement before then. High-level negotiations will begin at the APEC Trade Ministers' Meeting in Jeju on May 15-16.
Our government isn't just asking for tariff exemptions but plans to propose a 'package deal' that combines US investment desires with our tariff exemption needs. Specifically, they're discussing a plan where Korean companies would make large investments in advanced industries like semiconductors, batteries, and biotech in the US, while the US would not impose tariffs on Korean products.
The result of these negotiations is very important for our economy and companies. If 25% tariffs are imposed, Korean products exported to the US would become much less competitive, leading to decreased exports and unavoidable damage to the domestic economy. The auto industry, which depends heavily on the US market, could be especially affected.
Currently, our economy shows positive signs with increasing exports due to recovery in the semiconductor industry, but faces challenges from weak domestic demand and external uncertainties. A successful conclusion to US-Korea tariff negotiations will reduce external uncertainties and play an important role in our economy's stable growth.
2️⃣ Economic Terms
📕 Tariff
A tariff is a tax imposed on imported goods, used as a policy tool to protect domestic industries and secure government revenue.
- It raises the price of imported products to maintain the price competitiveness of domestic products.
- It's usually charged as a percentage (%) of the imported product's price and can be reduced through trade agreements between countries.
📕 Package Deal
A package deal is a negotiation method that bundles multiple issues together for a comprehensive settlement.
- Each party exchanges what they want and what they can concede to pursue mutual benefits.
- When agreement on a single issue is difficult, this approach broadens the scope of negotiation to increase the possibility of settlement.
📕 Trade Negotiations
Trade negotiations are formal discussion processes to establish trade conditions and rules between countries.
- They cover various economic issues including tariffs, non-tariff barriers, investment, and intellectual property rights.
- They can be bilateral (between two countries) or multilateral (among several countries), with results formalized as agreements.
📕 America First
America First is a US policy stance that prioritizes its national interests above all else.
- It emphasizes protectionism, domestic industry development, and job creation, using tools like tariff impositions.
- It brings changes to the global trade environment and supply chains, influencing the economic policies of other countries.
3️⃣ Principles and Economic Outlook
💡 US Tariff Policy and Changes in the Global Trade Environment
Let's examine how US tariff policies affect the global trade environment.
First, the Trump administration's protectionist policies are bringing fundamental changes to global trade order. President Trump imposed high tariffs on major trading partners including China, the EU, and Korea, citing "protection of US manufacturing and workers" immediately after his re-election. He imposed average tariffs of 34% on Chinese products and 25% on products from key allies including Korea. This challenges the free trade order established after World War II, accelerating global supply chain restructuring and "decoupling" (economic separation). While US protectionist policies may help some domestic manufacturing in the short term, they're likely to slow global economic growth and increase prices in the long term.
Second, tariffs directly impact export competitiveness and trade structure. For example, with a 25% tariff, a $30,000 Korean car would cost $37,500 in the US market. This weakens price competitiveness, leading to decreased exports and market share loss. The Korea Automobile Research Institute predicts that a 25% tariff would reduce Korean car exports to the US by up to 300,000 units annually. Export companies are expanding local production to reduce tariff burdens, which also affects domestic production and employment. Samsung Electronics and SK Hynix are increasing investment in US semiconductor factories, while Hyundai and Kia are implementing plans to increase US production.
Third, tariff disputes have ripple effects throughout global supply chains beyond bilateral relations. As trade tensions between the US and China intensify, global value chains are being restructured. Companies are diversifying production bases with "China Plus One" strategies, with Vietnam, India, and Mexico emerging as new production hubs. Korean companies are also diversifying supply chains to spread risk, especially increasing investments in Vietnam and India. These changes lead to increased costs and uncertainties in the short term but may contribute to building more stable and resilient supply chains in the long term.
US tariff policies go beyond simple trade issues to bring fundamental changes to the global economic order and industrial policies of each country. To respond, we need not only short-term tariff negotiations but also medium to long-term strategies to strengthen industrial competitiveness and diversify trade structures.
💡 Key Issues and Impacts of US-Korea Tariff Negotiations
Let's analyze the main issues in US-Korea tariff negotiations and how the results will affect our economy.
First, the core of US-Korea tariff negotiations is the exchange of 'expanded investment' for 'tariff exemptions.' The US wants increased investment from Korean companies in advanced industries like semiconductors, batteries, and biotech. This is to achieve their policy goals of reviving domestic manufacturing and creating jobs. On the other hand, Korea is requesting tariff exemptions for major exports. Exemptions for key export items like automobiles and auto parts, steel, and semiconductors are especially important. Our government plans to present ongoing US investment plans as a 'package' while also requesting expanded subsidies under the Inflation Reduction Act (IRA) and the CHIPS Act, not just tariff exemptions.
Second, negotiation results will have different impacts across industries. The auto industry will be most affected. For Hyundai and Kia, US exports account for about 30% of total production, so tariffs would have a direct negative impact. The steel industry also has high dependence on US exports and could be significantly affected. The semiconductor industry might be less affected since Samsung Electronics and SK Hynix are already expanding investment in the US. Meanwhile, linking tariff negotiations with investment could also affect domestic investment and employment. If companies increase US investment, domestic investment might relatively decrease.
Third, the success or failure of negotiations will be an important variable for our economy's short-term growth. The Bank of Korea forecasts that if 25% tariffs are fully imposed, GDP would decrease by 0.3-0.5 percentage points. Especially in our export-dependent economy, the US is the second-largest export market after China, so tariffs would burden exports that were recently showing recovery. If US-Korea tariff negotiations are successfully concluded, external uncertainties would decrease and business investment sentiment could improve. However, making major concessions in negotiations could have negative effects on domestic investment and employment as US investment expands, so a balanced negotiation strategy is important.
US-Korea tariff negotiations are an important issue that goes beyond simple trade matters to have widespread effects on industrial structure and economic growth. Our government and companies need a strategic approach considering not just short-term tariff avoidance but also medium to long-term industrial competitiveness and global positioning.
💡 Response Strategies for Our Companies and Economy
Let's explore strategies for our companies and economy to respond to changing tariff environments.
First, companies should use 'two-track' strategies to spread risk. While expanding production facilities in the US to reduce tariff burdens, they should also consider indirect export strategies using third-country production bases. Using Mexico, a USMCA (US-Mexico-Canada Agreement) member, for US market entry is gaining attention. In the medium to long term, it's important to restructure exports around high-value products and reduce dependence on price competitiveness by improving technology and brand value. At the same time, companies should strengthen emerging market development in India, ASEAN, and the Middle East to reduce US market dependence, while also revitalizing the domestic market.
Second, upgrading industrial structure and strengthening competitiveness are essential. In the protectionist era, survival based solely on price competitiveness is difficult. Product differentiation and higher value-addition through technological innovation are important, requiring expanded R&D investment and securing core technologies and talent. Investment in and development of future growth industries like AI, biotech, aerospace, and eco-friendly energy are especially needed. Companies should also strengthen supply chain management for stable procurement of key components and raw materials in response to global supply chain restructuring. The government should support these efforts through comprehensive industrial policies including regulatory reform, tax support, and human resource development.
Third, balanced economic development and domestic market revitalization are important. Our economy still has high export dependence, making it vulnerable to external variables. We need to revitalize the domestic market and enhance service industry competitiveness for a more balanced economic structure. Increasing household income and expanding consumption capacity are important for domestic market revitalization, requiring quality job creation, middle-class strengthening, and social safety net expansion. We should also secure new growth engines through digital transformation and green growth, and support new industry cultivation through innovation-friendly systems like regulatory sandboxes.
For our economy and companies to survive and grow in the protectionist era, we need not just short-term tariff responses but also industrial structure advancement and economic strengthening. A strategic approach that turns crisis into opportunity to become stronger is important at this time.
4️⃣ In Conclusion
US-Korea tariff negotiations will be an important turning point for our economy's short-term growth momentum and medium to long-term development direction. As the Trump administration's protectionist policies rapidly change the global trade environment, our government and companies need strategic and flexible responses.
Package deal negotiations are an important process that decides not just tariff exemptions but also future industrial cooperation and positioning in global supply chains. The US wants investment from Korean companies for domestic manufacturing revival and job creation, while we seek to secure favorable conditions in the IRA and CHIPS Act along with tariff exemptions.
Negotiation results will have different impacts across industries. Auto and steel industries are expected to be directly hit if tariffs are imposed, while semiconductor and battery industries might be less affected since US investment is already underway. However, we must also consider how expanded US investment will affect domestic investment and employment.
Our companies should explore various response strategies including expanded US production, indirect exports through third countries, market diversification, and high-value product development. The government should implement comprehensive policies including regulatory reform, R&D support, and new industry cultivation to support these efforts.
In the long term, industrial structure advancement and economic strengthening are needed to respond to the protectionist era. We should build an economic structure strong against external shocks through product differentiation via technological innovation, supply chain stability, and domestic market revitalization.
Ultimately, US-Korea tariff negotiations are both a challenge and an opportunity. We need wisdom to minimize short-term tariff burdens while using this as an opportunity for long-term competitiveness strengthening and industrial structure advancement. Strategic choices to turn crisis into opportunity and leap toward a stronger, more balanced economy are important.