🚨 US Tariff Negotiation Dilemma
Today Korean Economic News for Beginners | 2025.09.17
0️⃣ 25% Tariff vs $350 Billion Investment, What Will Korea Choose?
📌 Accept 25% Tariff or Invest in America? Korea's Big Decision
💬 The United States has proposed to lower tariff rates from 25% to 15% if Korea participates in a $350 billion investment and guarantee program. However, signing the deal is not easy due to uncertain investment recovery and unfavorable profit-sharing structure. Industry experts warn that if 25% tariffs become reality, Korea's key industries like automobiles, steel, and semiconductors will lose competitiveness, potentially causing annual GDP losses of up to 9 trillion won. The government is prioritizing securing 15% tariffs, but is also considering accepting tariff burdens and strengthening domestic support measures if the conditions are too unfavorable.
1️⃣ Easy Explanation
America has offered Korea a deal: "Invest big money and we'll reduce your taxes." But the conditions are so unfair that our government is worried. It's like someone saying "Lend me money and I'll lower your interest rate," but you're not sure if you'll get your money back.
Let me explain the situation. America said it will charge 25% tax (tariffs) on Korean products. For example, a Samsung smartphone that costs $1,000 would have to be sold for $1,250 in America. This makes Korean products more expensive and harder to sell.
But America offered this deal: "If Korea invests $350 billion (about 470 trillion won) in our investment projects, we'll lower the tariff to 15%." That's lower than 25%, but still quite high. The bigger problem is that the investment conditions are very unfair.
When Japan made a similar deal, America took 90% of the profits from the investment. Even if Korea invests 470 trillion won, we might get almost no profits back, and if there are losses, Korea might have to bear them. It's like saying "You pay the money, but if we make profits, I take them."
If 25% tariffs are imposed, Korea's main industries will be badly hurt. Hyundai and Kia sell about 1.5 million cars per year in America, but if tariffs make prices go up, sales will drop significantly. The same goes for steel companies like POSCO. Samsung and SK Hynix semiconductors won't be exceptions either.
Experts predict that if 25% tariffs become real, Korea's GDP (Gross Domestic Product) could decrease by up to 9 trillion won annually. This could lead to job losses and economic recession.
But accepting America's conditions as they are is also difficult. If we invest such a huge amount of 470 trillion won and lose money, it will eventually have to be covered by taxpayers' money.
In the end, the government faces a difficult choice: "Should we make a losing investment, or should we accept the tariff burden?"
2️⃣ Economic Terms
📕 Tariffs
Tariffs are taxes imposed on goods coming from other countries.
- They are used to protect domestic industries or increase government revenue.
- The higher the tariff rate, the more expensive imported products become, making domestic products relatively more competitive.
- However, consumers have to pay higher prices, and it can lead to trade disputes.
📕 Investment Guarantee
Investment guarantee is a system where a third party guarantees a certain portion to reduce investment risk when companies or countries invest overseas.
- If the investment fails, the government or guarantee institution compensates for some or all of the losses.
- While this reduces risk for investors, the guarantee institution takes on the loss risk.
- When the government provides guarantees, the burden may ultimately be passed on to taxpayers.
📕 GDP Loss
GDP loss refers to a decrease in Gross Domestic Product below expectations.
- When exports decrease due to tariff increases, production, employment, and investment all shrink.
- This means the economy's overall ability to create value is declining.
- GDP loss can lead to reduced national income and job cuts.
📕 Profit Distribution Structure
Profit distribution structure is the way profits from joint investments or businesses are divided among participants.
- It's determined considering investment proportion, risk burden, and contribution level.
- An unfair distribution structure creates situations where one party invests a lot but receives little profit.
- In the long term, it can reduce investment motivation and lead to economic dependence.
3️⃣ Principles and Economic Outlook
✅ The Spread of Protectionism and Its Impact on Korean Economy
Let's examine how America's tariff policy is changing the global trade order.
First, protectionism is becoming the core of the new international order. In the past, free trade was the basic principle under the World Trade Organization (WTO) system, but recently countries are actively using tariffs and subsidies to protect their domestic industries. America's plan to impose 25% tariffs on Korea is an extension of this trend. The problem is that if such policies spread, global trade volume will decrease and economic growth rates of all countries may fall. Countries like Korea with high trade dependence will inevitably face greater damage.
Second, the export competitiveness of Korea's key industries is fundamentally threatened. In the automotive industry, Hyundai and Kia sell 1.5 million cars annually in America, generating about $30 billion in sales, but if 25% tariffs are imposed, their price competitiveness will greatly decline. The steel industry faces the same situation. POSCO operates local factories in America, but will face tariff burdens when exporting high-grade steel produced in Korea. For semiconductors, while Samsung Electronics and SK Hynix are making large investments in America and some finished products may avoid tariffs, intermediate materials and components will likely still be subject to tariffs.
Third, there are concerns about the chain reaction economic impact on domestic employment and investment. When exports decrease, related companies' sales and profits decline, leading to employment reduction and investment delays. Particularly, automobiles, steel, and semiconductors are industries with many partner companies, so difficulties of large corporations are directly transmitted to small and medium enterprises. The Korea Development Institute (KDI) analyzed that if 25% tariffs become reality, employment in related industries could decrease by more than 200,000 people.
The spread of protectionism is demanding fundamental changes in Korea's economic structure, making new response strategies urgent.
✅ Investment Negotiation Traps and Financial Burdens
Let's analyze the problems with America's proposed investment conditions and the risks Korea must bear.
First, the unfairness of the profit distribution structure is at a serious level. Looking at similar agreements Japan signed, America took 90% of investment profits. This means that even if Korea invests 470 trillion won, we would only receive 10%, which is 47 trillion won in actual profits. What's more serious is that if losses occur, Korea must bear losses proportional to its investment share. For example, if Korea bears 30% of the total investment, Korea must also bear 30% of the losses. This is a structure of "receiving less profit while bearing more losses," which lacks economic rationality.
Second, the uncertainty of investment recovery is very high. The investment projects America proposed are mostly in infrastructure or energy fields, and such businesses take 20-30 years to recover investments. During that time, there are high risks that businesses could be suspended or profitability could decline due to political changes, policy modifications, or economic condition deterioration. In fact, Korean companies have suffered losses in overseas infrastructure investments several times in the past. Especially considering that America's political situation can change every four years, it's difficult to guarantee the stability of long-term investments.
Third, there are concerns about the ripple effects that financial burdens will have on the entire nation. 470 trillion won is a massive amount equivalent to 70% of the Korean government's annual budget (650 trillion won). To invest this money, we would need to increase government bond issuance or reduce other project budgets. If government bond issuance increases, the national debt ratio will rise, creating burdens for future generations. Also, if the investment fails, we might need to raise taxes or reduce welfare budgets to cover losses. This is ultimately a problem that all citizens must bear.
America's investment proposal superficially provides tariff reduction benefits, but substantially transfers excessive risks and burdens to Korea.
✅ Alternative Approaches and Long-term Strategies
Let's examine ways to increase competitiveness through strengthening domestic capabilities even while accepting tariff burdens.
First, strengthening competitiveness through domestic industry support may be more effective. Instead of investing 470 trillion won in America, if we support the same amount for research and development (R&D) and facility investment of domestic companies, we could see greater long-term effects. For example, investing 100 trillion won in semiconductors would enable next-generation technology development and production capacity expansion, leading to strengthened global competitiveness. In the automotive field, concentrated investment in electric vehicle and autonomous driving technology development could secure advantages in competition with Tesla and Chinese companies.
Second, we need a strategy to reduce dependence on America through market diversification. Currently, Korea's export proportion to America is about 15%, and it's important to reduce this and expand export destinations to emerging markets like Southeast Asia, India, the Middle East, and Africa. Particularly, India has great potential with economic growth rates exceeding 7% and a population of 1.4 billion. Southeast Asian countries like Vietnam, Indonesia, and Thailand are also seeing increased demand for Korean products as their middle classes grow. Market diversification makes us less susceptible to specific countries' tariff policies.
Third, we must increase technological independence to strengthen our position in negotiations. The more technologies Korea exclusively possesses, the more difficult it becomes for America to impose tariffs carelessly. In fact, Samsung and SK Hynix's advanced memory semiconductors are products that American companies absolutely need, so imposing tariffs would also damage American companies. It's important to expand such technological advantages to more fields. If we secure world-class technologies in future industries like biotechnology, new materials, robotics, and aerospace, we can stand in more advantageous positions in trade negotiations.
Focusing on long-term competitiveness strengthening rather than short-term tariff burdens could be a more sustainable strategy.
4️⃣ Conclusion
America's tariff negotiation appears superficially to be a choice between "tariff reduction vs investment," but it's actually an important turning point that will determine Korea's long-term economic direction. Rather than unfavorable investment conditions, accepting tariff burdens while focusing on strengthening domestic capabilities might be a wiser choice.
The most important thing is not to be deceived by numbers. Just because tariffs decrease from 25% to 15% doesn't unconditionally mean it's beneficial. It's uncertain whether we can recover the massive investment of 470 trillion won, and the profit distribution structure is also unfavorable. Looking at Japan's case, they invested but gained almost no real benefits.
Rather, if we put the same amount into domestic companies and industrial development, we could see more certain effects. Concentrated investment in future growth engine fields like semiconductors, automobiles, biotechnology, and new materials could significantly enhance global competitiveness, bringing effects that would more than offset tariff burdens in the long term.
Also, reducing dependence on America through market diversification is important. We must break away from the current structure of being influenced by specific countries' policy changes and expand export destinations to emerging markets like India, Southeast Asia, and Africa. These markets have great growth potential and increasing demand for Korean products, offering new opportunities.
Expanding technological advantages is also essential. If Korea secures world-class technologies in more fields, we can stand in more advantageous positions in trade negotiations. If America also needs Korea's technologies, it will become difficult to impose tariffs carelessly.
Ultimately, this negotiation must be approached in a direction that increases Korea's economic independence and sustainability beyond short-term profit calculations. Through certain domestic capability strengthening rather than uncertain overseas investment, it's more important to create an economic constitution that won't be shaken by any external pressure.
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