U.S. Caps Korean Imports at 15% in Major Trade Agreement

() — The United States finalized a trade deal with South Korea that will apply a 15% tax on imports, such as vehicles, and includes significant investments in U.S. energy and shipbuilding sectors.

The deal, revealed by President Donald Trump and verified by authorities in Seoul, incorporates one of the globe's largest exporters into America's developing trade system, avoiding a significant provider of vehicles, mobile devices, and equipment from facing a 25% tax mere hours before the cutoff date. The arrangement features a $350 billion South Korean investment fund directed toward U.S. ventures. Following an initial rise, the won declined versus the dollar, while stock indices in Seoul reversed their morning increases.

We've reached an agreement on a 15% tariff with South Korea," Trump stated in a message posted on his social media account on Wednesday. "The U.S. won't be subjected to a tariff.

The agreement resembles the one the U.S. made with South Korea's neighboring country, Japan, which involved a $550 billion commitment to invest. In both instances, the investments within the U.S. would be managed directly by Trump, according to the president. Additionally, for both financial arrangements, 90% of the earnings would return to the U.S., as stated by Commerce Secretary Howard Lutnick in a tweet. However, specifics are still not clear, and in the case of Japan, the parties provided different interpretations .

South Korea, a key U.S. military ally, has been working quickly to finalize an agreement following similar deals secured by Asian nations ranging from Japan to Indonesia. President Lee Jae Myung's administration, which took office just two months ago, faced challenges early on due to domestic political issues, forcing them to catch up rapidly.

It’s a situation where the worst was prevented, along with some reassurance regarding South Korean tariff concerns," wrote Kathleen Oh, Chief Korea Economist at Morgan Stanley, in a report. "This places South Korea on equal footing with its U.S. exporting rivals, particularly in the automotive sector.

Seoul officials verified the agreement and mentioned that it features the identical 15% reduced tariffs on vehicles—a major source of conflict during ongoing discussions between the two nations. Additionally, the pact prevented expanding U.S. access to the South Korean market for beef and rice imports, according to Senior Presidential Secretary Kim Yong-beom during a press conference in Seoul on Thursday—even though President Trump later stated that agricultural matters were included in the deal, offering no specifics. Access to agricultural markets has long been a contentious political topic, leading to significant public demonstrations in 2008 and posing a risk to the newly elected administration's support among vital voters.

The South Korean stock index Kospi fell 0.3% following initial gains, whereas the won weakened by 0.3% after initially rising up to 0.4%. Stocks of Hanwha Ocean Co. increased by as much as 16% due to the shipbuilding alliance, while shares of Kia Corp. and Hyundai Motor Co. declined by up to 6.3% and 4.3%, respectively, after Kim mentioned that the U.S. refused a South Korean proposal for a 12.5% tax on vehicles.

The agreement aligns with what was anticipated and has already been reflected in the markets," stated Peter Kim, Managing Director at KB Securities Co. in Seoul. "Investors might be somewhat let down that we couldn’t secure a more favorable terms compared to Japan. Given the strong performance of the market so far this year, it's currently taking a breather.

However, the agreement creates significant uncertainties for South Korea. Some of the nation's important exports, such as computer chips, batteries, and medicines, still face tariff risks. The Korean won has experienced fluctuations due to rumors that the U.S. requested an appreciation of the currency, which could be discussed during meetings between Finance Minister Koo Yun-cheol and U.S. Treasury Secretary Scott Bessent on Thursday. Additionally, concerns remain regarding U.S. forces based in South Korea, along with Trump's ongoing efforts to urge allied nations to contribute more financially toward maintaining American military presence.

The deal 'will provide quick support for South Korean exporters and financial sectors,' according to Hyosung Kwon and Adam Farrar from Economics. 'However, it also highlights worries regarding long-term economic and strategic challenges.'

Regarding the won, South Korea's Ministry of Finance stated that there were no direct discussions about the currency during trade talks, although associated issues are being addressed independently by officials from both nations.

Last year, exports accounted for over 40% of South Korea's gross domestic product, and the nation maintains one of the biggest trade surpluses with the United States. Being a crucial provider to vital international sectors, interruptions in the country's economic activities could lead to widespread impacts throughout global supply networks.

Cars, Energy

Including cars in the agreement represents a significant achievement for South Korea, as vehicles make up over 25% of the nation's exports to the United States. The Hyundai Motor Group, which had its Executive Chairman Chung Euisun join the Korean delegation during the concluding stages of negotiations in Washington, was particularly vulnerable because of its reliance on local manufacturing relative to competitors.

Trump also mentioned that South Korea has agreed to "accept American products such as cars and trucks, agriculture, etc." This is expected to involve an arrangement where Seoul will approve vehicles and truck manufactured according to U.S. automotive safety regulations, without imposing further conditions.

While cars and car components would qualify for the reduced 15% rate, U.S. Trade Representative Jamieson Greer stated to News that steel and aluminum would not receive an equivalent reduction as part of the South Korea trade agreement.

South Korea plans to buy $100 billion worth of liquefied natural gas or other energy supplies within the next three and a half years, as stated by Lutnick. Last year, the U.S. shipped approximately 88 million tons of LNG, according to the International Gas Union, valued around $50 billion based on present Asian market rates.

The promise adds to a European Union promise to purchase $750 billion worth of U.S. energy over three years – as concerns grow regarding how the U.S. will meet the quantities outlined in the nation's trading agreements with other countries.

Beef, Rice

Trump has highlighted investments within the U.S. and procurement pledges—particularly those linked to the country's petroleum and natural gas resources—in establishing trade agreement frameworks.

A 15% tax rate imposed on South Korea represents the outcome of several months of negotiations and allows Seoul—the U.S.'s sixth-largest trade partner—to avoid a 25% charge that had been scheduled to begin on August 1, along with new fees affecting numerous American trading allies.

The talks were particularly challenging for the new administration in South Korea, since President Lee proposed granting the U.S. more entry into South Korea's beef and rice markets—a issue of high political importance that led to significant demonstrations in 2008.

"The president highlighted the importance of stopping any additional liberalization of our agricultural and animal husbandry markets, considering their political delicacy and past background," Kim said to journalists.

Lee praised the agreement as eliminating ambiguity for exporters and enabling South Korea to rival major economies under fair or better conditions. The $350 billion fund will assist Korean businesses in accessing the U.S. market, including $150 billion allocated for the shipbuilding sector, he mentioned. Seoul has recently promoted a partnership in shipbuilding as a crucial suggestion to secure a deal.

We've successfully tackled a significant challenge," Lee posted on Facebook. "This deal stems from the alignment of U.S. interests in revitalizing its manufacturing sector with our dedication to boosting the competitiveness of South Korean businesses in the American market.

Donald Trump mentioned that the President of South Korea is scheduled to travel to Washington within the following fortnight for a one-on-one discussion.

Topics like highly accurate map data and farm products were some of the initial subjects discussed between South Korea's Trade Minister Yeo Han-koo and Greer. However, as negotiations progressed in recent weeks, South Korea held strong positions and managed to prevent these areas from receiving more compromises, according to Kim, who emphasized that no extra market access will be provided in these fields.

Clear guidelines regarding trade enable South Korean officials to concentrate on revitalizing the economy, which has suffered from slow consumer spending. Gross Domestic Product has resumed growth the last quarter following a slight decline in the prior period.

Lee's concessions came with the risk of undermining his initial success in office by disappointing farmers and causing divisions within his party. His win in the June elections, following several months of political instability, led to improved confidence from business leaders and consumers, along with a rise in stock prices to historic highs.

South Korea currently maintains a free trade agreement with the United States, and major corporations have committed hundreds of billions of dollars in investment during the course of the negotiations.

As the August 1st deadline set by the U.S. approached, various Asian countries were working quickly to secure more favorable conditions. South Korea managed to align with the Japanese agreement under the updated base rate of 15%. Indonesia and the Philippines both obtained a 19% rate, whereas Vietnam's remains at 20%. India, however, was unsuccessful in reaching an agreement not able to come to an understanding failing to achieve a consensus couldn't agree on terms no resolution was reached could not arrive at an agreement didn't manage to negotiate a settlement stuck without a mutual decision lacking a shared conclusion failed to finalize arrangements so far, and the U.S. will apply a minimum tariff of 25% on their exports. Discussions with China, the largest exporting country globally, remain ongoing, with a temporary trade agreement in place until August 12.

- With help from Seyoon Kim, Josh Wingrove, Hyonhee Shin, Jaehyun Eom, John Cheng, and Sangmi Cha.

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