🚨 New Phase in Korea-US Trade Talks: LNG Card Attempts to Solve Trade Deficit But Core Issues Remain

Today Korean Economic News | 2025.07.17

📌 Short-term Solution Through LNG Import Expansion, But Structural Issues Like Agriculture and Manufacturing Localization Still Remain

💬 The Korean government is using increased LNG (liquefied natural gas) imports as a key strategy to solve trade deficit issues with the US. Last year, Korea imported about $3.1 billion worth of US LNG, which is more than beef ($1.5 billion) and aircraft ($2.5 billion). Korea Gas Corporation plans to double US LNG imports and is also pursuing Alaska LNG imports. However, what the US really wants is increased local investment by Korean companies and "Made in America" implementation. Sensitive issues like reducing agricultural non-tariff barriers and increasing defense cost sharing remain unresolved, requiring long-term and strategic approaches.

1️⃣ Easy to Understand

Korea and the US are having trade talks, and Korea is suggesting to buy more LNG (liquefied natural gas) to solve the problem. But this alone cannot satisfy everything the US wants.

First, let me explain what "trade deficit" means. It's the difference when Korea exports more to the US than it imports from the US. For example, if Korea sells $100 worth of goods to the US but only buys $70 worth of goods from the US, there's a $30 trade deficit.

From the US point of view, they want to sell more to Korea. So they're asking Korea to "buy more of our products." LNG seems like a good solution because Korea really needs this energy source, the import amount is large, and there won't be much domestic opposition.

Actually, Korea imported $3.1 billion worth of LNG from the US last year. This is much more than US beef ($1.5 billion) or aircraft ($2.5 billion). Korea Gas Corporation announced they will double US LNG imports in the future.

But what the US really wants is more complex. The US wants Korean companies to come to America, build factories, and hire local workers. This is called "Made in America" - a policy to increase products made in the US. Samsung and LG building semiconductor or battery factories in the US are examples of this.

Also, the US wants Korea to buy more US agricultural products. They're asking to ease regulations on beef, apples, rice, and other products. But this is a sensitive issue that could face strong opposition from Korean farmers.

In the end, increasing LNG imports can be a temporary solution, but more complex and long-term approaches are needed to solve the fundamental problems.

2️⃣ Economic Terms

📕 Trade Deficit

Trade deficit is the difference when a country imports more from another country than it exports to that country.

• Korea's trade balance with the US recorded about $18 billion surplus in 2023.
• From the US perspective, they have a trade deficit with Korea and want to reduce it.
• Trade balance is used as an important indicator in economic relations and policy negotiations between countries.

📕 LNG (Liquefied Natural Gas)

LNG is natural gas cooled to minus 162 degrees Celsius to make it liquid.

• Its volume shrinks to 1/600 of its gas state, making storage and transport easier.
• Korea is the world's 3rd largest LNG importer, importing about $50 billion worth annually.
• It's more environmentally friendly than coal and is considered an important transition fuel in the carbon-neutral era.

📕 Non-tariff Barriers

Non-tariff barriers are all measures that limit imports through methods other than tariffs.

• These include import permits, quarantine standards, safety standards, and labeling requirements.
• They appear to be for consumer protection or safety but actually act as trade barriers.
• The WTO regulates these measures to prevent them from being excessive.

📕 Made in America

Made in America is a policy to prioritize using products made in the United States.

• It's one of the Biden administration's key policies aimed at reviving US manufacturing.
• It increases the proportion of US products in government procurement and encourages foreign companies to invest in the US.
• Korean companies are also expanding local US production in line with this policy.

3️⃣ Principles and Economic Outlook

✅ Effects and Limitations of LNG Strategy

• Let's analyze the effectiveness and structural constraints of the LNG import expansion strategy.

  • First, LNG is the most feasible short-term solution for reducing trade deficit. Korea's annual LNG imports are about $50 billion. If the US share increases from the current 6% to 15%, we can expect an additional $4.5 billion in import growth. LNG is connected to energy security, so there's less political burden and minimal domestic opposition. Korea Gas Corporation has already signed long-term contracts for US shale gas development projects and is pursuing participation in Alaska LNG projects. This can achieve both trade deficit reduction and energy security strengthening through supply source diversification.

  • Second, however, expanding LNG imports alone cannot meet America's fundamental demands. What the US really wants is not just increased imports but job creation and manufacturing base strengthening within the US. LNG is mostly produced in automated facilities with limited employment creation effects. Once imported, it's consumed directly without reprocessing, so value-added creation effects are also limited. Also, LNG prices fluctuate with international markets, making stable import expansion difficult to guarantee. Ultimately, LNG is only a temporary solution for trade imbalance, not a structural solution.

  • Third, long-term harmony with energy transition policies must also be considered. According to the 2050 carbon neutrality goal, Korea must reduce fossil fuel use in the long term. While LNG is more environmentally friendly than coal, it's still a fossil fuel. Rather than unconditional import expansion, it's better to use it as an intermediate role in the transition to renewable energy. Therefore, LNG import expansion should be pursued gradually in connection with energy transition roadmaps, while also pursuing cooperation in next-generation fuels like hydrogen and ammonia.

• The LNG strategy helps solve immediate trade issues, but a balanced approach considering both America's fundamental demands and Korea's long-term energy policies is needed.

✅ Manufacturing Localization and Supply Chain Cooperation

• Let's look at the current status and future strategies of Korean companies' increased local investment in the US.

  • First, large-scale investments are already underway in semiconductors and batteries. Samsung Electronics is building a $17 billion semiconductor plant in Austin, Texas, and SK Hynix is investing $3.8 billion in Indiana for an AI memory packaging plant. In batteries, LG Energy Solution operates three battery plants in Ohio, Tennessee, and Michigan through joint ventures with GM, and SK On built a battery plant in Georgia in cooperation with Ford. These investments alone amount to about $30 billion and create tens of thousands of local jobs. This perfectly aligns with America's "Made in America" policy.

  • Second, localization efforts are spreading to shipbuilding and auto parts sectors. Hanwha Systems is building local production bases to participate in US Department of Defense projects, and auto parts companies like Hyundai Mobis and Mando are also expanding US production. Cooperation in battery-related parts and charging infrastructure is increasing, especially for the electric vehicle era. The shipbuilding industry is also considering establishing local shipyards or technical partnerships to respond to America's Jones Act (domestic ship priority law). These movements represent strategies to expand market share through local production rather than simple exports.

  • Third, however, localization investment involves high costs and risks. Production costs are often 30-50% higher than in Korea due to high US labor costs, complex regulations, and union issues. There are also difficulties in securing skilled technicians and management problems due to cultural differences. Small and medium enterprises especially face limitations in localization due to insufficient large-scale investment capacity. The government is helping companies enter the US through K-Digital Platform government projects and Korea Development Bank support, but fundamentally, companies' competitiveness and capital strength must be backed for success.

• Manufacturing localization is a strategy that can achieve both trade friction resolution and market share expansion, but systematic preparation and support from government and companies are needed for success.

✅ Agricultural Opening and Domestic Agriculture Protection

• Let's analyze US demands for agricultural non-tariff barrier easing and domestic agricultural sector response measures.

  • First, US agricultural opening demands are becoming increasingly specific. The US continuously demands simplification of Korea's beef import procedures, easing of plant quarantine standards for fruits like apples and pears, and expanded rice market opening. They're strongly pushing for technical barrier easing, especially removal of additional BSE (mad cow disease) safety measures and shortening of GMO agricultural product approval procedures. Currently, US beef accounts for about 55% of Korea's beef imports, and the US goal appears to be increasing this to over 70%. This means an additional $1-1.5 billion in annual import increases.

  • Second, there's strong opposition from the agricultural sector and concerns about food safety. Korean farmers worry that increased imports of cheap US agricultural products could collapse the domestic agricultural base. Rice especially has great symbolic meaning for Korean agriculture and is directly connected to food security, so resistance to opening is very strong. There are also considerable consumer concerns about pesticide residues and GMO safety in US agricultural products. The government cannot pursue opening unilaterally while ignoring such domestic public opinion. As seen in the 2008 mad cow disease controversy or 2016 THAAD deployment disputes, agricultural opening issues can easily become political controversies.

  • Third, gradual opening and strengthening domestic agricultural competitiveness must go hand in hand. A gradual and selective approach is more realistic than complete closure or full opening. Opening should start with items whose safety has been confirmed, while simultaneously expanding investment to strengthen domestic agricultural competitiveness. It's important to upgrade domestic agriculture through smart farms, eco-friendly agriculture, and high-value agricultural product development. It's also necessary to pursue agriculture's 6th industrialization through agricultural processing industry development and rural tourism activation. The government is trying to minimize agricultural sector damage from opening through expanded agricultural income preservation direct payments and increased agricultural R&D investment.

• The agricultural opening issue is a complex task requiring simultaneous consideration of economic benefits and domestic political stability, needing gradual approaches based on social consensus.

4️⃣ In Conclusion

The Korean government's LNG card can be a realistic starting point for solving Korea-US trade issues, but more comprehensive and long-term strategies are needed for fundamental problem solving. What the US wants is not simple import increases but job creation and industrial base strengthening within the US.

LNG import expansion will certainly help. Additional imports worth $4.5 billion annually will significantly contribute to easing trade imbalances, and supply source diversification effects can be gained from an energy security perspective. However, this alone cannot satisfy America's fundamental demands.

More important is expanding Korean companies' local investment in the US. Major companies like Samsung, LG, and SK already investing hundreds of billions of dollars to build local factories is a very positive signal. This will help not only resolve trade friction but also strengthen companies' global competitiveness.

The agricultural opening issue is the most sensitive matter. Considering agricultural sector opposition and food safety concerns, gradual and selective approaches are needed rather than hasty opening. At the same time, investment and support for strengthening domestic agricultural competitiveness must also be expanded.

Ultimately, successful Korea-US economic cooperation requires a two-track strategy that simultaneously pursues short-term issue resolution and long-term structural improvement. The government must lead negotiations in mutually beneficial directions based on sufficient communication and consensus with domestic stakeholders.

The future of Korea-US trade relations depends not on simply increasing quantities but on creating sustainable cooperation models where both countries can grow together.