Seoul, Washington strike $450b deal to cap US tariffs at 15%

Korea Herald

31-07-2025

Agreement features $350b investment package, $100b energy imports, most-favored-nation status in key sectors
South Korea clinched a last-minute trade deal with the United States on Thursday, capping a looming blanket tariff at 15 percent and averting a steeper 25 percent rate set to take effect Friday. In return, Seoul agreed to a $350 billion investment package aimed at deepening economic ties with Washington.
The new 15 percent tariff rate, described as 'reciprocal,' aligns with terms recently accepted by Japan and the European Union. However, it marks a significant departure from the 2012 Korea-US Free Trade Agreement, effectively suspending the near-zero tariffs previously applied to key Korean exports.
President Lee Jae Myung hailed the outcome as a 'major breakthrough,' saying it would remove uncertainty for Korean exporters and allow domestic firms to compete on an equal or stronger footing with global peers.
'This agreement aligns America's goal of manufacturing revival with Korea's ambition to expand its industrial competitiveness in the US market,' Lee wrote on Facebook. 'It will further deepen Korea-US industrial cooperation and strengthen our alliance.'
Barely weeks into office, Seoul's new government scrambled to craft a concession package, starting at $100 billion and climbing toward Washington's $400 billion demand, as it fought to protect access to the US market that takes in 19 percent of Korea's exports.
Of the $350 billion commitment, $150 billion will fund a Korea-led shipbuilding partnership, dubbed 'Make American Shipbuilding Great Again.' Finance Minister Koo Yun-cheol called the initiative 'the single most decisive factor' in securing the deal.
'With Korean shipbuilders recognized for world-class design and construction capabilities, the project is expected to unlock new growth momentum and position Korea as a core partner in reviving US industry,' Koo said.
The remaining $200 billion, primarily in equity, loans and credit guarantees, will support industrial collaboration in strategic sectors where Korean firms have a competitive edge, including semiconductors, nuclear power, secondary batteries and biopharmaceuticals.
'To mitigate investment risk, the US government has pledged to take over output from supported projects, which will be screened for commercial viability and sound business rationale,' presidential policy chief Kim Yong-beom told reporters.
Seoul also committed to purchasing $100 billion worth of LNG and other US energy products over the next four years.
The presidential office emphasized that the final terms were carefully calibrated to Korea's advantage, particularly when compared to Japan's earlier trade deal with the US.
Despite similar 2024 trade surpluses, $66 billion for Korea and $68.5 billion for Japan, Korea's total investment commitment came in well below Japan's $550 billion package.
'Excluding the $150 billion shipbuilding fund led by our private sector, Korea's public investment accounts for just 36 percent of Japan's,' Kim said.
The deal also grants Korea most-favored-nation status in future US tariff decisions involving key sectors like semiconductors and pharmaceuticals, effectively shielding them from discriminatory hikes.
In a win for Korea's agriculture sector, Seoul preserved protections on rice and beef, sensitive areas long targeted by Washington for further market opening.
Several critical issues — including burden-sharing for US military presence in Korea, export controls on AI chips, and digital trade rules — were left out of the current deal and are expected to be addressed in future talks, possibly at a bilateral summit.
The 50 percent item-specific tariffs on steel, aluminum and copper remain unchanged, as they were not part of the negotiations.
A summit between President Lee and US President Donald Trump is being arranged and could take place within the next two weeks, according to presidential aides. The meeting is expected to reaffirm the agreement and lay the groundwork for broader economic cooperation.