US, South Korea seal 15% tariff deal

The Star

2 days ago

SEOUL: The United States has reached a trade agreement with South Korea that will impose a 15% tariff on imports, including autos, and set up major investment in American energy and shipbuilding.
The agreement, announced by President Donald Trump and confirmed by officials in Seoul, brings one of the world's biggest exporters into the United States' emerging trade framework and spares a major supplier of cars, smartphones, and machinery from a 25% rate just a day before the deadline.
The agreement includes a US$350bil South Korean fund for US investments.
Shares in Seoul rose in early trading, and the won strengthened against the dollar.
'We have agreed to a tariff for South Korea of 15%,' Trump said in a post to his social media platform on Wednesday.
'America will not be charged a tariff.'
The deal is similar to the one the United States reached with South Korea's regional rival, Japan, which included a US$550bil investment pledge.
In both cases, investments in the United States would be directed by Trump himself, the president said.
And for both funds, 90% of the profits would flow back to the United States, Commerce secretary Howard Lutnick said in a post on X.
Still, details remain unclear, and in Japan's case, the two sides offered different interpretations.
South Korea, one of the closest US military allies, has been racing to reach a deal after Asian countries from Japan to Indonesia sealed their own agreements.
President Lee Jae Myung's two-month-old government had to scramble to make up ground after being slowed out of the gate by internal political turmoil.
Officials in Seoul confirmed the agreement and said it includes the same 15% discounted tariffs on automobiles – a key point of tension in recent negotiations between the countries.
The deal also avoided opening the South Korean market further to US beef and rice exports, senior presidential secretary Kim Yong-beom said in a briefing in Seoul yestesrday – though Trump in his post indicated that agriculture is part of the agreement, without elaborating.
Market access for farm products has been a hot-button political issue that sparked widespread protests in 2008 and threatened to undermine the new government's popularity with a key voter group.
South Korea's benchmark Kospi stock index fell as much as 0.2% after erasing some early gains, while the won gained as much as 0.4% and traded at 1,388.69 per dollar.
'For the stock market, the deal brings a positive short-term outlook,' Sang-Young Seo, an analyst at Mirae Asset Securities, said in a note.
'For the upward trend to continue, we'll need to watch corporate earnings and key US economic indicators, among other issues.'
But the deal leaves major areas of uncertainty for South Korea.
Tariff risk remains for some of the country's key exports, including computer chips, batteries, and pharmaceuticals.
The won has been unsettled by reports that the United States demanded appreciation of the currency, a topic that may feature in talks between Finance Minister Koo Yun-cheol and US Treasury Secretary Scott Bessent yesterday.
There's also the issue of US troops stationed in South Korea and Trump's long-running campaign to push allies to increase their financial contributions to hosting American military personnel.
The agreement 'will bring immediate relief to South Korea's exporters and financial markets,' Hyosung Kwon and Adam Farrar of Bloomberg Economics wrote.
'It also raises concerns about longer-term economic and strategic risks.
Exports were equivalent to more than 40% of South Korea's gross domestic product last year, and the country holds one of the world's largest trade surpluses with the United States.
As a major supplier to key global industries, disruptions to the country's economy risked causing ripple effects across global supply chains.
Cars, including energy cars, being included in the deal is a major win for South Korea, as autos account for more than a quarter of the country's exports to the United States.
Hyundai Motor Group, whose executive chair Chung Euisun joined the South Korean team for the final stretch of talks in Washington, faced risk in particular due to its dependence on domestic production compared with rivals.
Trump also said South Korea had agreed to 'accept American products, including cars and trucks, agriculture, etc.'
That is likely to take the form of an agreement by Seoul to accept cars and trucks built to US motor vehicle safety standards without subjecting them to additional requirements.
Although automobiles and auto parts would be given the lower 15% rate, US Trade Representative Jamieson Greer told Bloomberg News that steel and aluminium would not be subject to a similar discount under the South Korea trade deal.
South Korea will purchase US$100bil in liquefied natural gas (LNG) or other energy products over the next three and a half years, Lutnick said.
The US exported about 88 million tonnes of LNG last year, according to the International Gas Union, which is worth about US$50bil at current Asian spot prices.
The pledge comes on top of a European Union promise to buy US$750bil of American energy over three years – and amid increasing questions about how the United States can fulfil the volumes being established in the country's trade frameworks with other nations.
Trump has emphasised investments in the United States and purchase commitments – especially those tied to the nation's oil and gas bounty – in reaching framework trade agreements.
The 15% tariff rate for South Korea is the culmination of months of talks and helps Seoul – the United States's sixth-biggest trading partner – avert a 25% levy that was set to take effect Aug 1, alongside fresh penalties for dozens of US trading partners.
The negotiations were especially delicate for the young government in South Korea, as President Lee considered allowing the US greater access to South Korea's beef and rice markets – a politically sensitive topic that spurred widespread protests back in 2008. — Bloomberg