🚨 US-Korea Tariff Negotiation Results
Today Korean Economic News for Beginners | 2025.11.17
0️⃣ Auto Tariffs Reduced to 15%, Steel & Aluminum Face 50% Tariffs
📌 Auto & Semiconductor Success vs Steel & Aluminum Excluded...Non-Tariff Barrier Concerns
💬 The US-Korea tariff negotiations concluded with mixed results for different industries. The auto industry achieved some success with tariff reductions, while the steel and aluminum sectors face significant challenges. Auto tariffs were reduced by 10 percentage points from the initial 25% to 15%, and semiconductors secured tariff rates equal to major competitors like Japan and Taiwan. However, steel and aluminum were excluded from the negotiation table and will face the full 50% tariff as originally announced. The steel industry, already struggling with declining export volumes, now faces additional tariff burdens that threaten profitability. Experts emphasize that "while tariff negotiations have concluded, discussions on non-tariff barriers such as data transfer regulations and platform regulations are likely to intensify, requiring continued response efforts."
1️⃣ Easy Explanation
Korea and the United States negotiated tariffs, and the results are now out. Cars and semiconductors got some relief, but steel and aluminum are still facing high tariff burdens. Let's look closely at what these negotiations mean for our economy and businesses.
First, we need to understand what tariffs are. A tariff is a tax charged when importing goods from another country. For example, if Korea exports a car to the US, the US government adds a certain percentage of tax to that car's price. When tariffs are high, imported products become expensive and harder to sell.
Recently, the US announced it would impose high tariffs on several countries, including Korea, which started these negotiations. The US said it would charge 25% on cars and a massive 50% on steel and aluminum, claiming it wanted to "protect our industries and reduce the trade deficit."
Cars and Semiconductors: Some Relief
Let's start with the good news. Car tariffs were reduced from 25% to 15%. That's a 10 percentage point reduction. Let's calculate how big this difference is.
Imagine Hyundai exports a $30,000 car to the US. With a 25% tariff, that would add $7,500 in taxes, making the consumer pay $37,500. But with the reduced 15% tariff, the tax becomes $4,500, so the total is only $34,500. That's $3,000 cheaper.
This improves Korean cars' price competitiveness. American consumers can more easily choose Korean cars, which helps maintain sales for companies like Hyundai and Kia. This is especially important since competition in the electric vehicle market is intense.
What about semiconductors? Semiconductors also secured tariff rates similar to major competitors like Japan and Taiwan. This means "at least we're not at a disadvantage." If only Korea had received higher tariffs, memory chips from Samsung Electronics or SK Hynix would have been more expensive than Japanese products in the US market.
However, there's an important point to note. Just because tariffs were reduced doesn't mean we're back to how things were. Originally, under the Korea-US FTA (Free Trade Agreement), car tariffs were 0%. So 15% is still higher than before. From the companies' perspective, it's "better than 25%," but it's hard to say things are completely good.
Steel and Aluminum: The Shock of 50% Tariffs
The industries hit hardest by these negotiations are steel and aluminum. These two products were completely excluded from the negotiation table, and the initially announced 50% tariff will be fully applied.
Let's see how big a 50% tariff burden is. Suppose POSCO exports steel at $1,000 per ton to the US. With a 50% tariff, that adds $500 in taxes. Then American buyers have to pay $1,500. If steel produced in the US costs $1,200, what happens? Obviously, Korean steel loses competitiveness and won't sell.
The steel industry is already in a difficult situation. International steel prices have fallen due to China's overproduction, and demand has also decreased due to slowing global economic growth. Adding a 50% tariff on top of this might mean practically giving up the US market.
For POSCO, US exports account for about 10% of total exports, and they need to redirect this volume to other markets or increase domestic sales. However, other countries are also reluctant to import, and domestic demand is limited, so it's not easy. Eventually, they have to reduce production or sell at lower prices, and both lead to decreased profitability.
The same goes for aluminum. Aluminum used in building materials, auto parts, and electronics will also see exports significantly decrease with the 50% tariff.
Why the Different Treatment?
So why were cars and semiconductors negotiable while steel and aluminum weren't? There are several reasons, but the biggest is America's strategic judgment.
First, cars and semiconductors are Korea's major export items and are also important to the US economy. Without Korean semiconductors, the US IT industry would also suffer. Additionally, Hyundai and Kia are building large factories in the US, contributing to job creation. So the US was somewhat flexible with these industries.
Second, the US views steel and aluminum as directly connected to "national security." The US argues that "we need the ability to produce steel and aluminum domestically in case of war or crisis." That's why they insisted on high tariffs to protect their domestic industry.
Third, there's also an intention to counter China. China has overwhelming production capacity in the steel market. The US is directly blocking Chinese steel while also trying to prevent indirect imports through Korea.
Non-Tariff Barriers: Could Be a Bigger Problem Ahead
While this negotiation settled the tariff issue for now, experts warn that "non-tariff barriers" could become a bigger problem in the future.
Non-tariff barriers mean restricting trade through methods other than tariffs. For example, regulations like "this product must pass our safety standards," "you need this certification," or "data must be stored on servers in our country."
The US is recently strengthening data transfer regulations, platform regulations, and environmental regulations. For instance, if a Korean company wants to provide services in the US, there might be rules requiring them to store US customer data only on servers within the US. This means building new data centers and significantly increasing operating costs.
Platform regulations are also expected. Korean IT companies like Naver or Kakao might have to pass strict regulations to provide services in the US. This isn't a visible cost like tariffs, but it can be an even bigger burden for companies.
How Should Companies Respond?
The auto industry needs to accept this 15% tariff and develop long-term strategies. Hyundai and Kia are already building electric vehicle factories in the US, and they need to expand this further to increase local production. If they produce locally, they don't have to pay tariffs.
Cost reduction is also important. To absorb the 15% tariff burden, they need to improve production efficiency and lower parts prices. They must find cost-cutting solutions together with suppliers.
The steel and aluminum industries need more fundamental changes. They must reduce dependence on the US market and develop new markets. That means finding new export destinations like Southeast Asia, the Middle East, and Europe. They also need to focus on developing high-value products. They should invest in products requiring technical expertise, like special steel for automobiles or eco-friendly aluminum, rather than regular steel.
Ultimately, this negotiation is just the beginning of a new trade environment facing the Korean economy. Companies need to restructure their export strategies beyond short-term responses, and the government also needs to prepare measures to address non-tariff barriers.
2️⃣ Economic Terms
📕 Tariff Rate
A tariff rate is the percentage of tax imposed on the price of imported goods.
- The higher the tariff rate, the more expensive imported products become, and the lower export companies' price competitiveness.
- For example, if a 25% tariff rate applies to a $10,000 product, $2,500 in tariffs is added, making it $12,500 total.
- Countries adjust tariff rates to protect domestic industries or improve trade balance.
📕 Non-Tariff Barriers
Non-tariff barriers are various regulations and procedures that restrict trade besides tariffs.
- These include safety standards, environmental regulations, certification requirements, and data storage obligations.
- They're less visible than tariffs but can be an even bigger burden for companies.
- Recently, non-tariff barriers in digital areas like data transfer regulations and platform regulations are increasing.
📕 Export Competitiveness
Export competitiveness is the ability to secure advantages over other countries' products in overseas markets.
- It's determined by various factors including price, quality, technology, brand value, and supply stability.
- When tariffs increase, price competitiveness decreases, and non-tariff barriers make market entry itself difficult.
- When export competitiveness weakens, market share decreases and corporate profitability worsens.
📕 Local Production Expansion
Local production expansion is a strategy of building factories in export destination countries and producing directly there.
- It avoids tariff burdens, reduces transportation costs, and can ease political pressure through local job creation.
- Hyundai and Kia building electric vehicle factories in the US is a representative example.
- However, initial investment costs are large, and there are challenges like managing local labor and sourcing parts.
3️⃣ Principles and Economic Outlook
✅ How Tariff Changes Affect Price Competitiveness
Tariffs directly affect the final price of exported products, determining market competitiveness.
First, tariff reductions lead to improved price competitiveness. When car tariffs drop from 25% to 15%, the same product becomes cheaper. For example, a $50,000 Hyundai with a 25% tariff becomes $62,500, but with 15% it becomes $57,500. A $5,000 difference greatly influences consumer choice. Especially in the US car market where price sensitivity is high, a few thousand dollar difference significantly affects sales volume. Dealers also have more room for discount promotions.
Second, tariff differences with competing countries matter. Korea securing the same tariff rates as Japan and Taiwan for semiconductors means "at least we're not at a disadvantage." If only Korea had received higher tariffs, Samsung Electronics and SK Hynix's memory chips would have been at a competitive disadvantage in the US market. Especially for high-value products like AI server high-bandwidth memory (HBM), where price competition is fierce, tariff differences could mean losing orders.
Third, 50% tariffs are barriers that block market entry itself. The 50% tariff applied to steel and aluminum completely neutralizes price competitiveness. If international steel prices are $800 per ton, adding $400 in tariffs makes it $1,200. If US-produced steel is $900, Korean steel won't sell at all. This isn't just a price burden but means market exit.
Tariff changes are key variables that affect not only short-term prices but also long-term investment strategies and production structures.
✅ Local Production and Supply Chain Restructuring
High tariffs make companies move their production bases to export destination countries.
First, local production is the surest way to avoid tariffs. Hyundai and Kia's electric vehicle factory being built in Georgia is part of this strategy. When this factory, which will produce over 300,000 units annually, is completed, it will replace much of the volume previously exported from Korea. Local production not only avoids tariffs but also reduces transportation costs and gives a good image to the US government and consumers.
Second, supply chains also move together. Making one car requires tens of thousands of parts. When Hyundai produces in the US, parts suppliers must also go to the US. In fact, several Korean auto parts companies are building or planning factories in the US. This also affects the domestic manufacturing ecosystem. If some volume moves overseas, domestic factory utilization rates drop and jobs may decrease.
Third, industries like steel where local production is difficult pursue market diversification. Steel requires large-scale investment and strict environmental regulations, so building overseas factories isn't easy. POSCO already has factories in India and Indonesia, but building new ones for the US market is difficult. Instead, they're modifying strategies to increase the proportion of other markets like Southeast Asia, the Middle East, and Europe. They're also focusing on developing high-value products to avoid simple price competition.
Changes in the tariff environment accelerate global production network restructuring, which has long-term effects on domestic industrial structure.
✅ Rise of Non-Tariff Barriers and Response Strategies
Going forward, non-tariff barriers are likely to become more important trade issues than tariffs.
First, non-tariff barriers in digital trade are rapidly increasing. The US and Europe are strengthening Data Localization regulations. These are rules requiring foreign companies to store data collected from citizens on servers within the country. Companies like Naver or Kakao would need to build large-scale data centers in the US to expand services there. This requires investments from hundreds of millions to trillions of won.
Second, platform regulation and algorithm transparency requirements are also growing. Europe's Digital Services Act (DSA) and Digital Markets Act (DMA) require platform companies to disclose algorithms, prevent unfair trading, and guarantee data portability. For Korean companies to comply with these regulations, they must significantly modify their systems and greatly increase legal and compliance personnel. This isn't a direct cost like tariffs but significantly increases operational burden.
Third, environmental and safety regulations also act as de facto trade barriers. Europe's Carbon Border Adjustment Mechanism (CBAM) imposes additional costs on products that emit a lot of carbon during production. Steel and aluminum are representative examples. Korean companies must make production processes eco-friendly or increase the proportion of renewable energy use. This requires massive investment as a long-term task. Ethical raw material procurement for electric vehicle batteries (such as prohibiting child labor in cobalt mining) is also being required.
Non-tariff barriers are more complex and diverse than tariffs, and companies must have comprehensive response capabilities across legal, technical, and management areas.
4️⃣ In Conclusion
These US-Korea tariff negotiations brought mixed results for Korean export companies. Cars and semiconductors got some relief, but steel and aluminum face significant damage.
Reducing car tariffs from 25% to 15% is clearly an achievement. However, considering it was originally 0% under the FTA, the burden is still significant. Hyundai and Kia must expand local production and reduce costs to secure price competitiveness. Semiconductors also secured conditions equal to competitors, but with fierce technological competition, they can't be complacent.
Steel and aluminum face near-exclusion from the US market with 50% tariffs. Steel companies including POSCO must find breakthroughs through market diversification and high-value product development. However, already facing difficulties from Chinese overproduction and declining global demand, losing the US market too could make restructuring inevitable.
The bigger problem is what lies ahead. While tariff negotiations have concluded, more complex and difficult challenges called non-tariff barriers are waiting. Data regulations, platform regulations, and environmental regulations can't be solved with one negotiation and require continuous response. Especially in IT and digital services, international norms aren't yet established, creating significant uncertainty.
What lessons does this news offer for individual investors or young professionals? First, the global trade environment is changing rapidly. The era of expanding free trade is over, and an era where countries protect their domestic industries has arrived. Second, companies' business environment is becoming difficult. When tariff and regulatory burdens increase, profitability worsens and employment and investment may decrease.
If you're an investor, you should pay attention to these changes. Auto stocks may respond positively to tariff reduction news in the short term, but in the long term, you must consider investment burdens from local production expansion. Steel stocks may see stock prices fall due to concerns about worsening performance. Conversely, parts companies or logistics companies increasing US local production might face new opportunities.
The government must support companies in adapting to the new trade environment. Especially small and medium-sized companies find it difficult to respond to complex regulations alone, so they need legal and technical consulting and financial support. Efforts to improve our companies' export environment through FTA renegotiations or new trade agreements must also continue.
Ultimately, these tariff negotiations are just the beginning. For Korean companies to maintain competitiveness in the process of global trade order restructuring, constant innovation and strategic adjustment are necessary. And in that process, government, companies, and citizens must gather wisdom together.
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