🚨 US-Korea Tariff Deal Reached
Today Korean Economic News for Beginners | 2025.09.08
0️⃣ 15% Tariff Agreement, Large Investment Promises End Trade Dispute
📌 US-Korea Tariff Deal at 15%...Investment and Jobs Balance Challenge Emerges
💬 US-Korea tariff negotiations have concluded with tariffs set at 15% instead of the originally feared 25%. Large-scale cooperation agreements in shipbuilding, nuclear power, and aviation have strengthened industrial cooperation, but concerns are growing about high-value companies moving overseas and domestic job losses. Tariff reductions for automobiles and semiconductors and most-favored-nation treatment guarantees are not yet documented, leaving trade uncertainty. The government says it "prevented short-term shock," but industry voices are rising that "reducing US dependence and export diversification are urgent."
1️⃣ Easy Understanding
The US and Korea have solved their trade conflict through negotiations. The US, which originally planned to impose 25% high tariffs, agreed to lower them to 15% after receiving Korea's large investment promises. Let me explain what this means for us in simple terms.
First, let's understand what tariffs are. Tariffs are taxes imposed on goods coming from foreign countries. For example, when Korea exports cars to the US, the US government adds a 15% tax on top of the car's price. If a car costs $1 million, they must pay an additional $150,000 in tariffs, so it actually sells for $1.15 million.
Originally, the US said it would impose 25% tariffs, which would have been devastating for our companies. A $1 million car becoming $1.25 million would greatly reduce competitiveness. So lowering it to 15% through negotiations is a significant achievement.
Korea made promises in exchange for lower tariffs. The biggest one is participating in the "MASGA" project to revive America's shipbuilding industry. Korean shipbuilding companies promised to build shipyards in the US and create jobs. They also agreed to large-scale investment and technology cooperation in nuclear power plant construction and aircraft manufacturing.
However, not all problems are solved. Tariff reductions for key sectors like automobiles and semiconductors are not yet documented. With only verbal promises, the US could change its mind anytime. Especially since Japan already receives lower automobile tariffs, Korean companies might face disadvantages.
Another problem is that our companies investing heavily in the US might reduce domestic jobs. If advanced technology and skilled workers move to the US, only relatively low-value jobs might remain in Korea.
In the end, this negotiation prevented short-term crisis but left the long-term challenge of not depending too much on the US and increasing trade with other countries.
2️⃣ Economic Terms
📕 Tariff
A tariff is a tax imposed on goods coming from foreign countries, used to protect domestic industries or as a negotiating tool in trade talks.
- The higher the tariff rate, the more expensive imported goods become, making domestic products more competitive.
- Lowering from 25% to 15% means improved competitiveness for Korean products in the US market.
- However, there's still additional cost burden, so it's not a complete solution.
📕 Most-Favored-Nation Treatment (MFN)
Most-favored-nation treatment is a principle that trade benefits given to one country should be equally applied to other trading partners.
- For example, if the US applies 5% tariffs to Japan, it should apply the same 5% to Korea.
- It's a basic principle of the WTO system that prevents trade discrimination.
- Korea tried to secure this status in negotiations, but it's not yet confirmed.
📕 MASGA (Make America's Shipbuilding Great Again)
MASGA is a policy to revive America's shipbuilding industry, meaning "Make America's Shipbuilding Great Again."
- The US was once the world's top shipbuilding nation but has fallen behind Korea and China.
- From defense and economic security perspectives, shipbuilding reconstruction is a national task.
- Korean shipbuilding companies promised to invest in the US with technology transfer and job creation.
📕 CPTPP (Comprehensive and Progressive Trans-Pacific Partnership)
CPTPP is a multilateral trade agreement involving 11 Asia-Pacific countries.
- The goal is to expand trade between member countries through tariff elimination and trade liberalization.
- If Korea joins, it's expected to help reduce US dependence and diversify exports.
- Current participants include Japan, Australia, Canada, New Zealand, Singapore, and others.
3️⃣ Principles and Economic Outlook
✅ Protectionism and Negotiation Dynamics
Let's analyze how US tariff policy works logically and how Korea responded.
First, US protectionism's core goal is protecting domestic industries and creating jobs. Since the Trump administration, the US has been trying to bring manufacturing jobs back to America through "America First" policies. Especially for shipbuilding, it's a strategic industry directly connected to national defense, so the US government pays special attention. The US was once the world's largest shipbuilding nation but now lags behind Korea and China, unable to properly build even warships. Against this background, they use a "carrot and stick" strategy of blocking foreign products with high tariffs while encouraging investment within the US.
Second, Korea chose a strategy of reducing tariff burden through investment expansion and technology cooperation. Rather than simply demanding tariff reductions, they increased negotiating power by providing what the US wanted. Hyundai Heavy Industries and Hanwha Systems presented specific investment plans like establishing shipyards and defense companies in the US, and Korea Electric Power participating in US nuclear projects. This created a win-win structure where the US could also gain practical benefits like job creation and technology acquisition.
Third, however, uncertainty remains in the negotiation results. The biggest problem is that tariff reductions for key items like automobiles and semiconductors are not yet documented. With only verbal promises, they could be reversed anytime, making it difficult for companies to make long-term plans. Also, Japan already receives lower automobile tariffs, putting Korean companies in a relatively disadvantageous position. The risk that the US could change policies anytime according to its own interests is also a risk factor.
In the end, this negotiation succeeded in short-term crisis avoidance, but additional efforts are needed for fundamental trade structure improvement.
✅ Investment and Jobs Dilemma
Let's examine the opportunities and risks that large-scale overseas investment can bring in a balanced way.
First, US investment expansion provides new growth opportunities but also poses domestic hollowing-out risks. When Korean companies produce directly in the US, they can access local markets without tariff burden and increase dollar-based sales. Especially for shipbuilding, opportunities opened to enter the US naval vessel construction market. However, conversely, there's a risk that only relatively low-value processes remain domestically as advanced technology and skilled workers transfer to the US. Concerns are raised about repeating the case where domestic electronics industry ecosystems weakened when Samsung and LG made large investments in China in the 2000s.
Second, concerns about technology leakage and competitiveness weakening are also growing. Core technology transfer might be required as a condition for US investment, potentially reducing Korean companies' competitive advantages long-term. Especially for shipbuilding, if Korea's eco-friendly ship technology and smart ship technology transfer to the US, it could become disadvantageous when competing in global markets later. Also, to meet the local employment ratios demanded by the US government, many skilled technicians from Korea would need to be dispatched, which could lead to domestic labor shortages.
Third, changes in Korea's position in the global value chain will be inevitable long-term. While US investment expansion gives Korean companies opportunities to grow as "global companies," there's simultaneously a risk of weakening the manufacturing base at the national level. This could also lead to employment structure changes, with manufacturing jobs decreasing and reorganization toward service industries. The government appears to need greater focus on nurturing new industries and training high-level personnel to prepare for such changes.
As overseas investment expansion involves both opportunities and risks, finding the balance between maintaining domestic industrial foundations and overseas expansion is a key challenge.
✅ Trade Diversification and New Strategies
Let's explore new trade strategies for reducing US dependence and sustainable growth.
First, CPTPP membership and developing emerging markets have emerged as urgent tasks. Currently, Korea's export dependence on the US is about 17%, the second highest after China (22%). With the US able to play the tariff card anytime, export market diversification is essential. Joining CPTPP would provide tariff benefits in trade with Japan, Australia, Canada, and others, and could expand trade with future additional members like the UK or Thailand. Expanding market share in emerging markets like India, Brazil, and Africa is also an important strategy.
Second, strengthening competitiveness in advanced technology fields is key to trade stability. Korea could exert some negotiating power in these negotiations because it has competitive advantages in advanced technology fields like shipbuilding, nuclear power, and semiconductors. Continuing to maintain and expand such technological advantages is necessary to occupy favorable positions in negotiations with not only the US but other countries. Particular focus should be on technology development in future growth areas like green energy, bio, and aerospace.
Third, building trade safety nets through multilateral cooperation and regional economic integration participation is necessary. Depending only on bilateral relationships makes one vulnerable to partner countries' policy changes. Therefore, active utilization of multilateral cooperation systems like ASEAN+3 and RCEP, and participation in new regional cooperation like the Indo-Pacific Economic Framework are needed. Also, increasing utilization of existing agreements like Korea-ASEAN and Korea-India FTAs, and pursuing new trade agreements with the EU and South America should be considered.
Ultimately, reducing dependence on specific countries and building diversified partnerships is essential for creating a stable trade environment.
4️⃣ In Conclusion
This US-Korea tariff negotiation conclusion achieved short-term crisis avoidance and market defense results, but long-term, it more clearly revealed the structural challenges our economy faces. Adjusting to 15% tariffs is definitely an achievement, but many tasks remain.
The biggest achievement is avoiding the originally expected 25% tariffs and preventing agricultural product market opening. Promising large-scale investment and cooperation in shipbuilding, nuclear power, and aviation sectors to somewhat satisfy US demands is also commendable. This became an opportunity to plant the perception that Korea is not just an exporting country but a partner that substantially contributes to the US economy.
However, unresolved problems are also considerable. Tariff reductions for key items like automobiles and semiconductors are not yet documented and could change anytime. The differential treatment problem with Japan also remains, with possibilities that Korean companies might face disadvantageous competition. Above all, the fundamental risk that the US government could change policies anytime according to its own interests has not been resolved.
Another concern is the impact on the domestic economy. While large-scale overseas investment allows companies to grow, domestic industrial foundations could weaken as advanced technology and personnel transfer overseas. Having experienced similar problems during China investment expansion in the past, a more careful approach is needed this time.
Long-term, this incident gave us an important lesson. The higher the dependence on a specific country, the more vulnerable one becomes to that country's policy changes. Therefore, diversifying export markets through CPTPP membership, emerging market development, and new FTA agreements is urgent.
Maintaining technological advantages is also a key task. Korea could exert some negotiating power this time because it possesses irreplaceable technologies in shipbuilding, nuclear power, semiconductors, and others. Continuing to expand such technological advantages will be necessary to occupy favorable positions in future negotiations.
In the end, this negotiation could become a turning point for transforming crisis into opportunity. Short-term shock has been prevented, but now is the time to embark on more fundamental and long-term strategy establishment. While relationships with the US are important, equally strengthening relationships with other markets to create a balanced trade structure is our challenge.
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