🚨 US Tariff Delay and Defense Cost Pressure: Korea Faces Complex Negotiations

Today Korean Economic News | 2025.07.12

📌 US Adds Defense Cost Card to Tariff Talks…Korea Secures 20-Day Negotiation Window

💬 The Trump administration delayed imposing 25% tariffs on Korean products until August 1st, giving Korea 20 more days to negotiate. However, President Trump mentioned increasing defense cost sharing, raising pressure levels. The Korean government faces complex negotiations involving both tariffs and defense costs, and plans to seek solutions through a Korea-US summit this month. The US had warned of tariffs on Korean semiconductors, cars, and steel, but left room for negotiation if Korea opens its agricultural market more and increases defense cost sharing.

1️⃣ Easy Explanation

The US was going to put high taxes on Korean products but delayed it for about a month. However, they are now asking for more things, putting the Korean government in a difficult situation.

First, let me explain what "tariffs" are. Tariffs are taxes placed on goods coming from other countries. For example, if Korea makes a car and exports it to the US, and the US government puts a 25% tax on that car, the car becomes 25% more expensive. This makes American consumers buy fewer Korean cars, which reduces Korean companies' sales.

President Trump originally said he would put 25% tariffs on Korean products starting July 12th, but delayed this until August 1st - a 20-day delay. On the surface, this seems like giving more time to negotiate, but it's actually seen as a strategy to demand more things.

The most notable change is that President Trump mentioned "defense cost sharing." This is money that Korea pays to help cover the costs of US troops stationed in Korea. Currently, Korea pays about 1.4 trillion won per year, but the US wants Korea to pay more.

The US is also asking Korea to open its agricultural market more. Specifically, they want Korea to remove restrictions on importing beef from cattle older than 30 months and to open the rice market more. This could hurt Korea's farming industry, so it's a politically sensitive issue.

The Korean government cannot easily accept all these demands. Instead, they want to lead negotiations toward increasing US company investments in Korea and expanding industrial cooperation between the two countries. However, considering President Trump's "deal-focused" negotiation style, this will likely be a difficult negotiation.

In the end, Korea faces the challenge of successfully completing complex negotiations covering trade, security, and agriculture within just 20 days.

2️⃣ Economic Terms

📕 Tariff

A tariff is a tax placed on goods imported from other countries.

• It's imposed to protect domestic industries and increase government revenue.
• The higher the tariff rate, the more expensive imported goods become, making them less competitive.
• If a 25% tariff is imposed, a $100 product becomes $125, losing competitiveness.

📕 Defense Cost Sharing

Defense cost sharing is money Korea pays to help cover the costs of US troops stationed in Korea.

• The official name is "Special Measures Agreement (SMA)" between Korea and the US.
• Currently, Korea pays about 1.4 trillion won per year.
• This includes costs for building US bases, wages for Korean workers, and military support.

📕 Protectionism

Protectionism is a policy of restricting imports to protect domestic industries.

• Methods include imposing tariffs, setting import quotas, and creating technical regulations.
• While it protects domestic industries short-term, it can reduce competitiveness long-term.
• It risks leading to trade wars through retaliation from other countries.

📕 Agricultural Market Opening

Agricultural market opening is a policy that allows or reduces restrictions on importing foreign agricultural products.

• It gives consumers lower prices and more choices.
• It creates competitive pressure and income reduction risks for domestic farmers.
• Careful consideration is needed regarding impacts on food security and rural economy.

3️⃣ Analysis and Economic Outlook

✅ Trump's Negotiation Strategy and Korea's Response

• Let's analyze President Trump's "deal-focused" negotiation style and strategies Korea can take.

  • First, Trump is strengthening negotiation pressure by linking various issues. A typical example is connecting defense cost sharing increases to tariff negotiations that originally aimed to reduce trade deficits. This is Trump's consistent negotiation pattern - presenting multiple options simultaneously to maximize negotiating power. Rather than responding to individual issues separately, Korea should approach this from a comprehensive package deal perspective. For example, strategic thinking is needed to accept some defense cost increases in exchange for complete tariff removal, or to exchange partial agricultural market opening with expanded industrial cooperation.

  • Second, time pressure through negotiation deadlines is also Trump's typical method. By setting a short 20-day period, he's trying to make Korea make hasty decisions without sufficient review. However, Korea should not be swayed by such pressure and maintain principled positions. At the same time, quick decision-making is needed for practical negotiation results. The government should prepare scenario-based response plans in advance and secure negotiation flexibility through prior consultation with the National Assembly and industry.

  • Third, Korea should respond with a win-win strategy emphasizing mutual benefits. Rather than simply accepting or rejecting US demands, it's important to propose alternatives that benefit both countries. For example, practical cooperation results can be created through expanding Korean companies' US investments, increasing imports of US energy, and joint research and development in advanced technology fields. This approach aligns with President Trump's "America First" policy while protecting Korea's national interests.

• Successful negotiation requires a balanced approach that understands Trump's negotiation style while protecting Korea's core interests.

✅ Economic Impact and Risk Management

• Let's examine the economic impact if tariffs are actually imposed and ways to minimize them.

  • First, 25% tariffs would directly hit Korea's major export industries. Semiconductors, automobiles, and steel - Korea's main export items to the US - are all included in the tariff targets. Samsung Electronics and SK Hynix's memory semiconductors, Hyundai and Kia's automobiles, and POSCO's steel products would lose significant price competitiveness. Industry experts worry that tariffs could reduce US exports by more than 30%. This means losses of about $15 billion annually, or about 20 trillion won. Small and medium-sized parts companies with high dependence on US exports would be particularly hurt.

  • Second, supply chain reorganization and investment reduction are medium to long-term concerns. If tariffs continue long-term, Korean companies would have to consider expanding US local production or indirect exports through third countries. This could lead to reduced domestic investment and job cuts. It could also weaken Korea's position in global supply chains and reduce competitiveness. Therefore, the government needs policy consideration to support companies' overseas expansion while maintaining the domestic industrial base. Competitiveness must be strengthened through expanded R&D investment, new technology development support, and high-value-added industry development.

  • Third, policy responses to minimize macroeconomic shocks are important. Export reductions could lead to lower economic growth rates and employment deterioration. The Bank of Korea and government need active responses through monetary and fiscal policy. This includes stimulating domestic demand through interest rate cuts, expanding policy financing to support export companies, and reemployment support for workers in affected industries. Also, export diversification to China, Europe, ASEAN and other regions should be actively promoted to reduce dependence on the US.

• Preemptive responses to tariff risks must be combined with medium to long-term economic structural improvements.

✅ New Paradigm in Korea-US Relations and Response Strategy

• Let's explore the changing nature of Korea-US relations and future strategic directions.

  • First, Korea-US relations are changing from traditional alliance relationships to economic interest-focused ones. President Trump's "America First" policy means a practical approach that makes no exceptions for allies. The perspective of separating security cooperation and economic cooperation, treating each as a subject for deals, is being strengthened. This is a new challenge for Korea but also an opportunity. A strategy is needed to maximize the economic value Korea can provide to the US and secure stability in security cooperation through this.

  • Second, Korea's strategic value is being highlighted in the era of technology competition. As US-China technology competition intensifies, Korea's importance in advanced technology fields like semiconductors, AI, and batteries is growing. The US wants to strengthen technology cooperation with Korea to counter China, but also demands economic benefits. Korea must find a balance point that expands technology cooperation while protecting technology sovereignty. Strategic partnerships should be strengthened through semiconductor alliances and battery supply chain cooperation with the US, while reducing dependence on external sources for core technologies.

  • Third, strengthening negotiating power through multilateral cooperation and regional integration is needed. Korea's negotiating power in bilateral negotiations with the US is inevitably limited. Therefore, cooperation with Japan, the European Union, ASEAN and others should be strengthened to create multilateral negotiation structures. Important strategic elements include pursuing CPTPP membership, strengthening cooperation through improved Korea-Japan relations, and expanding economic integration with ASEAN. Also, active participation in WTO system strengthening and multilateral trade norm development is needed to create an international environment that can check unilateral measures like tariff imposition.

• Actively responding to changes in Korea-US relations while securing Korea's strategic autonomy is an important task.

4️⃣ Conclusion

The US tariff delay and defense cost pressure are demanding Korea make major decisions within just 20 days. This is an important turning point that could determine the future of Korea-US relations, going beyond simple trade negotiations.

President Trump's negotiation strategy is clear. He wants to get maximum concessions from Korea by linking various issues including trade, security, and agriculture. The Korean government faces the difficult task of finding realistic solutions without giving in to such pressure.

The most important thing is to clarify priorities. Since 25% tariffs could deal a fatal blow to the Korean economy, preventing them is the top priority. Some level of concessions may be unavoidable for this, but strategic approaches are needed within limits that don't harm national interests.

Regarding agricultural market opening, while there's significant domestic political burden, rational decisions considering overall economic benefits are needed. Defense cost sharing also needs adjustment at appropriate levels considering the sustainability of the Korea-US alliance. However, such concessions should not be one-sided, and corresponding compensation from the US must be secured.

In the medium to long term, this situation should be used as an opportunity to reduce dependence on the US and promote economic structural diversification. A stronger economic structure more resistant to external shocks must be created through export market diversification, increased self-reliance in core technologies, and strengthened competitiveness of domestic companies.

Ultimately, the success of these negotiations should be evaluated not only from short-term crisis management but also from long-term national strategy perspectives. We hope this becomes a turning point for Korea to overcome these difficult times wisely and develop into a stronger, more self-reliant economy.