🚨 Gyeongju APEC US-China Tariff Truce
Today Korean Economic News for Beginners | 2025.11.09
0️⃣ Tariff Cut from 57% to 47%, Rare Earth Restrictions Suspended for 1 Year
📌 Nvidia's 260,000 GPU Supply to Korea and US-Korea Nuclear Submarine Cooperation Also Announced
💬 President Trump and President Xi reached an agreement to ease US-China trade tensions during the APEC summit in Gyeongju and Busan. The US agreed to lower the average tariff on Chinese imports from about 57% to 47% (a 10 percentage point reduction), and China agreed to suspend export restrictions on key materials including rare earths, gallium, and germanium for one year. Both countries agreed to "gradually reduce tariffs and non-tariff barriers through further negotiations." Along with this agreement, Nvidia announced it would supply 260,000 GPUs to Korea in cooperation with the Korean government and companies, and both countries sent a message about strengthening nuclear submarine cooperation. Experts say "supply chain uncertainty will decrease in the short term, but technology and security issues remain, so this is more of a managed ceasefire than a complete solution."
1️⃣ Easy Explanation
The United States and China have decided to pause their trade war and take a breather. Until now, the US had imposed high taxes (tariffs) on Chinese products to reduce imports, and China responded by limiting exports of rare earth materials essential for advanced industries. With this agreement, both sides have taken a step back and tensions have eased a bit.
First, let's explain what tariffs are. A tariff is a tax imposed when importing goods from other countries. For example, when bringing electronics made in China to the US, you have to pay an extra tax on top of the original price - that's a tariff. The Trump administration kept raising tariffs to pressure China, and recently they reached an average of 57%. If you import a $100 item, you have to pay an additional $57 in tax, so you actually pay $157.
These high tariffs create several problems. First, import prices go up, so American consumers have to pay more. Second, American companies using Chinese parts also face higher costs. Third, China retaliates by imposing high tariffs on American products, hurting US export companies.
With this agreement, the US will lower the average tariff on Chinese imports from 57% to 47%. A 10 percentage point reduction is quite significant. Think of it as the tariff on a $100 item dropping from $57 to $47. It's not back to the old levels, but the burden is definitely reduced.
On the other side, what did China offer? China agreed to suspend export restrictions on key materials like rare earths, gallium, and germanium for one year. Rare earths are essential raw materials for making smartphones, electric vehicle batteries, semiconductors, missiles, and other high-tech products. The problem is that China produces about 70% of the world's rare earths. If China blocks exports, the global high-tech industry could be paralyzed.
Let me give you an example. Company A makes electric vehicles and needs lithium and rare earths for batteries. If China restricts rare earth exports, Company A can't make batteries and eventually has to stop producing electric vehicles. This situation almost happened over the past few months. China started gradually controlling rare earth exports from 2023 and showed signs of strengthening controls this year.
But with this agreement, China will suspend these restrictions for at least one year. Electric vehicle, semiconductor, and battery companies can breathe a sigh of relief. This is especially good news for Korean companies. Companies like Samsung Electronics, SK Hynix, LG Energy Solution, and Hyundai Motor all use a lot of Chinese rare earths.
There's more good news. Nvidia announced it would supply 260,000 GPUs to Korea. GPUs are essential components for artificial intelligence (AI) training and server operations. With AI services like ChatGPT becoming popular, GPU demand has exploded, but supply has been very short and they've been very hard to get.
Can you imagine how much 260,000 units is? If we assume each unit costs about $30,000 (about 42 million won), the total is $7.8 billion (about 10.9 trillion won). This will be a huge help to Korea's AI industry and data center industry. Companies like Naver, Kakao, and Samsung will be able to secure the infrastructure needed to develop their own AI models and expand services.
US-Korea nuclear submarine cooperation was also announced. While this is more of a security issue than an economic one, it's a positive signal for Korea's defense industry and advanced technology cooperation. Nuclear submarines are the core of naval power with excellent long-range operational capability and stealth. Korea sharing some of the US's nuclear submarine technology and strengthening cooperation means the US-Korea alliance is deepening.
So why did the US and China suddenly reach an agreement? Because both sides realized that continuing the trade war would be harmful. For the US, high tariffs raised prices and hurt businesses, making public opinion worse. For China, exports decreased and economic growth slowed. China has been struggling with a real estate crisis and youth unemployment, so improving relations with the US was urgent.
Also, both countries wanted to show the international community the image of "responsible major powers" at this APEC meeting. Especially since middle-power countries like Korea, Japan, and ASEAN nations were increasingly complaining about being hurt by US-China conflicts. To gain support from these countries, they needed to show dialogue and cooperation.
However, experts see this agreement as a "managed ceasefire" rather than a "complete solution." Technology and security conflicts remain. The US is still blocking China's advanced semiconductor technology development, and China is resisting US technology containment. Also, geopolitical tensions like the Taiwan issue and South China Sea disputes haven't been resolved.
We also need to look at the US trade balance. The US trade deficit with China has recently decreased. Higher tariffs reduced Chinese imports. But the overall trade deficit hasn't decreased much. Why? Because products that used to be made in China moved production to countries like Vietnam, Mexico, and Ireland. In the end, "Made in China" just changed to "Made in Vietnam," but US imports themselves didn't decrease much.
This is called "trade diversion." Like water flowing to another place when one path is blocked, production moves to other countries when China is pressured. Vietnam and Mexico's exports to the US have surged, and the US trade deficit with these countries has also grown.
In the end, this agreement gives time to breathe in the short term, but it's not a fundamental solution to US-China conflicts. Companies and investors need to continue watching these changes while diversifying supply chains and managing risks.
2️⃣ Economic Terms
📕 Tariff
A tariff is a tax imposed when importing goods from other countries.
- It's used to raise import prices to protect domestic industries or as a negotiating tool to pressure other countries.
- When average tariffs decrease, import prices go down and companies' cost burdens are reduced.
- However, tariffs ultimately have a strong indirect tax nature that consumers bear, affecting prices.
📕 Rare Earths
Rare earths are a collective term for 17 elements essential for manufacturing smartphones, EV batteries, semiconductors, and other high-tech products.
- China produces about 70% of the world's rare earths, so China's export controls have a huge impact on the global industry.
- Examples include neodymium (permanent magnets), lithium (batteries), gallium and germanium (semiconductors).
- Securing rare earths is an important strategic resource not only economically but also for security.
📕 Trade Balance
Trade balance is the amount of exports minus imports over a certain period.
- A trade surplus means exports exceed imports, and a deficit means the opposite.
- The US trade deficit with China decreased, but the overall trade deficit hasn't improved much.
- Even if tariff revenue increases, the overall trade balance may not improve, so caution is needed when evaluating policy effects.
📕 Supply Chain Diversification
Supply chain diversification is a strategy to reduce dependence on specific countries or suppliers and spread sourcing to multiple places.
- Moving production bases to Vietnam, India, Mexico, etc. to reduce dependence on China is a typical example.
- While costs may increase in the short term, it reduces risks and increases stability in the long term.
- Many companies learned the importance of supply chain diversification after experiencing COVID-19 and US-China conflicts.
3️⃣ Principles and Economic Outlook
✅ Economic Effects of Tariff Reduction
Tariff reduction lowers import prices and reduces companies' cost burdens, but the effects are complex.
First, the impact on consumer prices. Tariffs are essentially indirect taxes that are ultimately passed on to final consumer prices. When the US imposes a 57% tariff on Chinese products, importers have no choice but to reflect this cost in product prices. When tariffs drop to 47%, there's room for a 10 percentage point price reduction. However, consumer prices don't drop immediately. Distribution margins are added and exchange rate fluctuations also have an effect. Still, in the long term, it helps ease price increases.
Second, the impact on corporate competitiveness. US companies using Chinese parts or raw materials can see cost savings from tariff reductions. For example, Apple sources a significant portion of iPhone parts from China. When tariffs decrease, manufacturing costs go down, which can lead to improved profit margins or enhanced price competitiveness. However, for companies like Apple with global supply chains that have already moved some production to India or Vietnam, the effect of tariff reduction may be limited.
Third, the impact of reduced tariff revenue. Lowering tariffs also reduces the tariff revenue the government collects. The US government has collected hundreds of billions of dollars in annual tariff revenue in recent years by imposing high tariffs on Chinese products. When tariffs decrease, this revenue decreases, which could burden finances. However, from an overall economic perspective, the positive effect of increased consumption and investment from reduced burdens on companies and consumers may be greater.
Tariff reduction lowers prices and cost burdens in the short term, but long-term effects depend on supply chain restructuring and exchange rate fluctuations.
✅ Trade Diversion and Supply Chain Restructuring
Even when pressuring China with tariffs, trade diversion is occurring as production moves to other countries.
First, the rise of Vietnam and Mexico. When the US imposed high tariffs on China, many companies moved production bases to Vietnam, Mexico, India, etc. Vietnam's exports to the US increased from $50 billion in 2018 to $140 billion in 2024, nearly tripling. Clothing brands like Nike and Adidas, as well as electronics manufacturers like Samsung Electronics, have significantly increased production in Vietnam. Mexico has also rapidly emerged as a base for automobile and electronics assembly. As a result, the US trade deficit with China decreased, but the trade deficit with Vietnam and Mexico increased significantly.
Second, the disguise strategy of "Made in China." Some Chinese companies set up factories in Vietnam or Thailand, do only final assembly there, and attach "Made in Vietnam" labels to export to the US. Core parts are still made in China, but only the origin is changed. The US government is aware of this avoidance strategy and is gradually strengthening regulations, but it's hard to completely block. This trade diversion is more of a paper change than a real supply chain change.
Third, the need for genuine supply chain diversification. Simply moving production locations is not enough. Dependence on China remains high for core raw materials like rare earths. The US and allies are making multifaceted efforts, including developing rare earth mines in Australia and Canada, advancing recycling technology, and researching alternative materials. Korea is also strengthening rare earth cooperation with Canada and Australia. However, these changes are long-term tasks that take years.
Trade diversion is only a short-term solution; genuine supply chain stability requires diversification of the entire process from raw materials to final products.
✅ Continuation of Technology and Security Conflicts
While tariff and rare earth issues have been partially eased, conflicts in advanced technology fields like semiconductors and AI are expected to continue.
First, semiconductor technology competition. The US is restricting equipment exports to block China's advanced semiconductor technology development. ASML's extreme ultraviolet (EUV) lithography equipment from the Netherlands is essential for cutting-edge semiconductor manufacturing, but cannot be exported to China due to US pressure. China is investing hundreds of billions of dollars in independent technology development, but hasn't yet caught up with US, Korean, and Taiwan technology levels. As long as this gap isn't narrowed, technology conflicts will continue.
Second, AI development competition. Artificial intelligence is the core of future economy and military power. The US regulates so Nvidia's high-performance GPUs cannot be exported to China. The announcement to supply 260,000 GPUs to Korea is part of an ally-preferential policy. China is developing its own AI chips, but it's difficult to catch up with Nvidia in performance. The AI technology gap is directly connected not only to economic competitiveness but also military superiority, so competition between the two countries will intensify.
Third, Korea's strategic choice. Korea is in a difficult position of balancing between US-China conflicts. Economically, China is the largest trading partner, but security-wise, Korea is allied with the US. This Nvidia GPU supply and nuclear submarine cooperation are interpreted as signals that Korea is leaning more toward the US. However, economic relations with China are also important, so Korea is expected to pursue a strategy of cooperating with the US in technology and security while maintaining relations with China in economy and trade.
Tariff and rare earth issues have been temporarily eased, but technology hegemony competition will be prolonged, and strategic diplomacy becomes increasingly important for Korea.
4️⃣ In Conclusion
The US-China tariff truce at the Gyeongju APEC is a positive signal in the short term, but not a fundamental solution.
Tariff reduction and suspension of rare earth export restrictions give companies time to breathe and reduce supply chain uncertainty. This is especially welcome news for Korean companies that depend on Chinese parts and rare earths. Samsung Electronics, SK Hynix, LG Energy Solution, Hyundai Motor, etc. can reduce cost burdens in the short term and make stable production plans.
Nvidia's promise to supply 260,000 GPUs will also greatly help Korea's AI industry development. Companies like Naver, Kakao, and Samsung can secure the infrastructure needed to develop their own AI models and expand data centers. This is an important foundation for Korea to gain competitiveness in the AI era.
However, this agreement has clear limitations. First, there's a time limit. The rare earth export restriction suspension is for one year. There's no guarantee that China won't strengthen regulations again after one year. Second, conflicts in core technology fields like semiconductors and AI remain. The US will continue to block China's technology development, and China will accelerate independent technology development. Third, geopolitical tensions haven't been resolved. The Taiwan issue, South China Sea disputes, and North Korea's nuclear problem remain flashpoints.
How should individual investors and companies respond? First, don't rest on short-term relief and continue managing long-term risks. Supply chain diversification, inventory strategies, and exchange rate hedging remain necessary. Second, increasing technological independence is important. Especially securing independent technology in core fields like semiconductors, batteries, and AI is the key to long-term competitiveness. Third, closely monitor government policies and international situations. US-China conflicts can intensify again without notice, and everyday preparation is needed to respond quickly.
The Korean government also needs to make strategic choices more carefully. Balanced diplomacy is needed to strengthen alliance with the US while maintaining economic relations with China. Also, to secure strategic resources like rare earths, cooperation with friendly countries like Canada and Australia should be strengthened, and investment in recycling technology and alternative material development is necessary.
In the end, this tariff truce is "temporary stability," not a "complete solution." The essence of US-China conflicts is about technology hegemony and leadership in world order, which won't be resolved in the short term. We need to prepare to live with this uncertainty, and that's exactly why risk management and strategic thinking are important.
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