Analysis-South Korea's new leader to seek more time for US trade talks

Yahoo

2 days ago

By Jihoon Lee and Cynthia Kim
SEOUL (Reuters) -The new South Korean administration will likely make efforts to buy time for U.S. trade talks, as it studies the negotiations of bigger neighbours Japan and China for leverage, according to sources familiar with the ruling party's thinking.
President Lee Jae-myung, who is due to take office hours after winning the June 3 snap presidential election without a usual two-month transition period, said on the eve of the elections that "the most pressing matter is trade negotiations with the United States."
The future of South Korea's export-oriented economy will hinge on what kind of deal Lee can strike, with all of his country's key sectors from chips to autos and shipbuilding heavily exposed to global trade.
The new president and his liberal Democratic Party government inherit an economy that is expected to grow this year by a grim 0.8%, the weakest since 2020, and will need to unify a country deeply polarised by ousted President Yoon Suk Yeol's botched martial law attempt.
South Korea and other countries may face further pressure, as a draft letter seen by Reuters showed the Trump administration wanted countries to provide their best offer on trade negotiations by Wednesday. A trade ministry official declined to confirm if Seoul had received the letter.
But the transition of power after a six-month leadership vacuum provides Seoul with an excuse to slow down its negotiations and observe Washington's tariff talks with other countries, lawmakers, officials and trade experts from the Democratic Party said.
"The new administration will need to take a fresh look at the overall framework of the negotiations and that will be a buffer to buy time, which the U.S. cannot reject," said a trade expert who took part in brainstorming for Lee's trade strategies.
The sources added the administration may not be able to immediately ask Trump for an extension, and Lee's top diplomacy adviser has said he sees such a request being considered only after reviewing the progress.
Still, prolonged negotiations by other countries may help to buy Seoul time.
"It will be strategically right to take a wait-and-see stance because the situation is changing within the United States and around negotiations of other countries," one lawmaker said.
STRATEGIC SILENCE
South Korea, a major U.S. ally and one of the first countries to engage with Washington after Japan, agreed in late April to craft a "July package" scrapping levies before the 90-day pause on Trump's reciprocal tariffs is lifted, but progress was disrupted by continued upheavals in South Korea's leadership.
Lee has since stressed there is no need to rush into clinching a deal and the deadline of July 8 set between Seoul and Washington should be reconsidered.
During his election campaign, Lee did not make specific comments about contentious issues around the trade talks. That "silence" was a strategic move, a party official said.
In a statement after his victory, the Korea International Trade Association called for Lee to "respond quickly to the rapidly changing foreign trade order" and use all of the government's diplomatic and trade resources to pursue a practical negotiation strategy.
Trump's across-the-board tariffs on trading partners, including 25% duties on South Korea, have been the subject of ongoing litigation, but remain in place.
"For different reasons, China and Japan will be references for us, with the former on the possibility of U.S. policy changes and the latter on how to make moves under a similar circumstance," another trade expert said.
Japan, another U.S. ally slapped with 24% tariffs, no longer sees merit in striking a quick deal, unless it is granted an exemption from 25% product-specific duties on its key industry of automobiles, also a major sector for South Korea.
China agreed with the U.S. to significantly unwind their tariffs on each other in a 90-day truce signed in mid-May, but Trump last week accused Beijing of violating the agreement and threatened to take tougher actions.
When it comes to joint responses to U.S. tariffs, there is a higher possibility with Japan than China, two sources said, citing shared interest in energy purchases and auto tariffs.
Lee's party expects there to be some "two-track" transitional period, with current officials continuing negotiations as the new administration formulates its strategies, according to the official.
BETTER POSITIONED
Given its strength in key sectors of U.S. interest, such as shipbuilding and technology, some analysts see South Korea as better positioned than others in the region, as Seoul prepares a separate package of industrial cooperation for bargaining power.
"Successful outcomes require offers that support the president's domestic agenda, and this will be comparatively easy for Korea given its importance in politically sensitive industries," said Jay Truesdale, a former U.S. diplomat and CEO of TD International, an advisory firm in Washington, D.C.
Kathleen Oh, Morgan Stanley's chief Korea and Taiwan economist, said: "We believe there may be more channels and enough scope for Korea to work out a deal compared to, let's say, its exporting peer Taiwan."
South Korea has the scope to decrease its trade surplus with the U.S. via more import purchases, while it can also offer to lower tariffs on agricultural products, particularly rice, quoted by Trump as a high tariff example, Oh said.
But, for the Lee administration, that is more the reason it does not have to rush, the second trade expert said.
"In the worst-case scenario, if tariffs are adjusted after we sign an agreement, that might mean we made unnecessary concessions," the source said, adding "it's not like we don't have any leverage".