🚨 US-Korea Tariff Deal Reached

Today Korean Economic News for Beginners | 2025.08.02

0️⃣ 15% Tariff Agreement, $350 Billion Investment Prevents Worst Case

📌 Successfully reduced from original 25% by 10 percentage points, minimizing damage to key exports like semiconductors and cars

💬 The long and difficult US-Korea tariff negotiation has finally been settled. The US agreed to lower tariffs on Korean exports from the originally threatened 25% to 15%, avoiding the worst-case scenario. Korea's proposal of a $350 billion US investment plan at the last moment played a decisive role in reaching the agreement. This deal reduces the expected damage to key exports like semiconductors, cars, and steel compared to earlier fears, but the 15% additional burden will still be a significant challenge for export companies. Meanwhile, the domestic economy shows slight recovery in consumer spending due to consumption vouchers and summer vacation season, but the outlook for the second half remains unclear with sluggish construction investment and near-zero economic growth rate.

1️⃣ Easy Explanation

The tariff negotiation with the US is finally over. We succeeded in lowering the tariff rate from 25% to 15%, but it will still be a burden for our companies. Fortunately, we avoided the worst situation.

Let me first explain why this negotiation was important. The US threatened to put high tariffs on Korean products, saying Korea didn't open its market enough to American goods. A tariff is an extra tax you have to pay when foreign products come in, and when it's high, those products become expensive and hard to sell.

For example, if a Korean car sold for $50,000 in the US, with a 25% tariff it would cost $62,500. This would make American consumers buy cars from other countries or American cars instead of Korean cars.

But since we agreed to 15%, the same car would cost $57,500. It's still more expensive, but less burden than 25%.

We could achieve this result because the Korean government presented a powerful card called the "$350 billion investment package." This is a plan for Korean companies to invest about 470 trillion won in the US over the next 10 years. It includes Samsung Electronics building more semiconductor factories, Hyundai expanding electric car plants, and SK Hynix establishing research centers.

From America's perspective, it's good because Korean companies come to America to build factories and create jobs. President Trump also expressed satisfaction, saying "Korea showed its will to actually contribute to the American economy."

The domestic economic situation is also getting a little better. Department store and mart sales increased thanks to consumption vouchers distributed by the government, and travel and dining consumption also increased during summer vacation season. However, the construction industry is still in a difficult situation. New construction projects have decreased, so there's not enough work.

In the end, we avoided the worst situation through this negotiation, but we still need continued efforts to manage relations with the US and recover the economy.

2️⃣ Economic Terms

📕 Tariff

A tariff is a tax imposed on goods coming from foreign countries, used as a means to protect domestic industries.

• The higher the tariff rate, the more expensive imported products become and the less competitive they are.
• With this agreement, 15% tariffs will apply to Korean products.
• Tariffs are paid by consumers in the importing country, not companies in the exporting country.

📕 Mutual Tariff

Mutual tariff is an agreement method where two countries apply the same level of tariffs to each other.

• If Korea puts 15% tariffs on US products, the US also puts 15% on Korean products.
• The purpose is to resolve trade imbalances and ensure fair competition.
• This was the core issue in this negotiation.

📕 Investment in the US

Investment in the US means investments that Korean companies make in America.

• This includes factory construction, research center establishment, and mergers and acquisitions.
• The promised $350 billion is about 470 trillion won in scale.
• It's expected to create jobs in the US and transfer technology.

📕 Domestic Demand Recovery

Domestic demand means economic activity through consumption and investment within the country.

• Retail and service industries are recovering thanks to consumption vouchers and vacation season effects.
• Construction investment is still sluggish, so the overall recovery speed is slow.
• Activating domestic demand is an important factor in reducing export dependency.

3️⃣ Analysis and Economic Outlook

✅ Meaning and Limitations of the Tariff Deal

• Let's analyze the real impact the 15% tariff agreement will have on the Korean economy and export companies.

  • First, we avoided the worst scenario but significant burden still remains. If 25% tariffs had been imposed, Korea's exports to the US were expected to drop sharply by 30-40%, but with the reduction to 15%, the decrease is expected to be around 15-20%. For cars specifically, Korea currently holds a 5% market share in the US market, but even with 15% tariffs, a 1-2 percentage point decline seems unavoidable. Semiconductors and steel products are also expected to see export volume decreases due to reduced price competitiveness.

  • Second, whether the $350 billion investment promise will actually be implemented is key. This investment plan includes Samsung Electronics' Texas semiconductor factory expansion ($20 billion), Hyundai's Georgia electric car factory expansion ($10 billion), and SK Hynix's Indiana research center establishment ($5 billion). However, such large-scale investments can be adjusted based on economic conditions or corporate performance, so we need to watch whether they're actually implemented. If investment promises aren't kept, the US might raise tariffs again.

  • Third, in the long term, this could be an opportunity to strengthen Korean companies' global competitiveness. Increasing local production in the US can not only avoid tariff burdens but also save transportation costs and enable faster supply. Also, easier access to America's advanced technology and talent could help improve research and development capabilities. However, large initial investment costs and lack of local operation experience could worsen profitability in the short term.

• This agreement got us past the immediate crisis, but it's more about buying time rather than being a fundamental solution.

✅ Signs of Domestic Economic Recovery and Structural Challenges

• Let's examine whether domestic demand recovery movements can actually lead to an overall economic rebound.

  • First, consumer recovery is clear but questions arise about sustainability. Retail sales increased 2.1% month-on-month in July due to government-distributed consumption vouchers (5 trillion won total) and summer vacation effects. Clothing (4.2%), cosmetics (3.8%), and dining out (3.1%) increased significantly. However, these effects are likely temporary. Consumption could shrink again once consumption vouchers are exhausted and vacation season ends. Actually, household debt is still at high levels and high interest rate burdens continue, limiting spending capacity.

  • Second, sluggish construction investment is holding back economic recovery. July construction orders decreased 18.3% year-on-year, marking 11 consecutive months of negative records. Housing construction is declining due to real estate market slump, and government SOC (social infrastructure) investment is also being reduced for fiscal soundness reasons. The construction industry has large ripple effects on other industries, so if this sector doesn't recover, overall economic recovery will be difficult. The government is considering urban renewal project activation and greenbelt lifting, but it will take time for visible effects to appear.

  • Third, there's the realistic constraint of near-zero economic growth rate. The IMF forecasted Korea's economic growth rate at 0.8% this year, which is significantly below the OECD average (1.8%). The main cause is export slump and domestic demand stagnation appearing simultaneously. Exports to China are decreasing due to China's economic slowdown, and exports to the US are also being hit by tariff disputes. Domestic demand also can't increase much due to high interest rates and household debt burdens, making it difficult to find growth momentum.

• Signs of domestic demand recovery are positive, but without resolving structural problems, it will be difficult to lead to sustained growth.

✅ Future Outlook and Response Directions

• Let's comprehensively examine the second-half economic outlook and strategies that the government and companies should take.

  • First, companies' strategic shifts to minimize tariff burdens will accelerate. Export companies are exploring various measures including expanding US local production, indirect exports through third countries, and switching to high-value-added products. Hyundai Motor Group already produces 700,000 vehicles annually at US Alabama and Georgia plants and plans to increase this to 1 million. Samsung Electronics is also starting full-scale advanced semiconductor production at its Texas plant to reduce dependence on US exports. These moves increase investment burdens in the short term but are expected to lead to strengthened global competitiveness in the long term.

  • Second, the success of the government's domestic demand activation policies will be key to second-half economic performance. The government is trying to boost domestic demand through additional consumption voucher issuance, tourism activation, and expanded support for small business owners. Particularly, the 'Regional Love Gift Certificate' discount rate expansion (10%→15%) starting in September and special consumption voucher distribution during Chuseok holidays are planned. However, the effects of these policies may be limited. Fundamentally, household debt burden relief and employment stability improvement must be supported for sustained consumption increases to be possible.

  • Third, discovering new growth engines and industrial structure transformation is urgent. Traditional manufacturing-centered growth models have limitations, so fostering new industries like artificial intelligence, biotechnology, and renewable energy is necessary. The government announced plans to strengthen the semiconductor ecosystem through 'K-Semiconductor Belt' construction and grow the bio industry by creating a 'Bio Healthcare Innovation Hub.' Also, in connection with carbon neutrality policies, it plans to expand eco-friendly energy industries like batteries, hydrogen, and solar power. For these investments to show actual results, 3-5 years are needed, but we must prepare now to secure future competitiveness.

• In the short term, focus on mitigating tariff shocks and boosting domestic demand, but in the long term, building new growth models through industrial structure innovation is necessary.

4️⃣ Conclusion

The dramatic settlement of the US-Korea tariff negotiation is evaluated as an achievement that got us past the biggest immediate crisis facing the Korean economy. Lowering the tariff rate from 25% to 15% is certainly a diplomatic victory, but it will still be a considerable burden for our export companies.

The core of this agreement was the promise of massive $350 billion investment. Korean companies were able to persuade the Trump administration by presenting concrete plans to build factories and create jobs in America. However, whether these investments will actually be implemented and what impact they'll have on companies' profitability remains to be seen.

The domestic economy shows slight recovery due to consumption vouchers and vacation season effects, but structural problems still remain. Construction investment slump continues, and the reality of near-zero economic growth rate shows the difficult situation of our economy.

The challenges we need to solve going forward are clear. First, companies' strategic responses to minimize tariff burdens are necessary. Expanding US local production and switching to high-value-added products will be the methods.

Second, the government's policy efforts for domestic demand activation must achieve results. Beyond simple consumption boosting measures, fundamental solutions like household debt burden relief and employment stability improvement are needed.

Third, we must find new growth engines. Traditional manufacturing alone has limitations, so investment and fostering of future industries like artificial intelligence, biotechnology, and renewable energy is urgent.

Most importantly, through this situation we confirmed once again the danger of an economic structure that depends excessively on specific countries. We must move toward a more balanced economic structure through export market diversification and domestic demand base expansion.

In the end, this tariff negotiation settlement is a starting point where we can turn crisis into opportunity. Wise responses that minimize short-term shocks while building long-term competitiveness are needed at this time.