Deals and Dilemmas: Korea–U.S. Tariff Agreement

On July 31^st, Korea and the United States (U.S.) reached a final agreement to lower mutual tariff rate from 25% to 15%. The deal marks a significant milestone, as it is expected to reshape the competitive landscape across various key industries, particularly the shipbuilding and automotive sectors. In response, the Sungkyun Times (SKT) will explore the background of the negotiations, their impact, and an overall assessment of the agreement.

From Tensions to Agreement

-A New Era of Tariff Wars

In April 2025, the U.S. declared a national emergency over its chronic trade deficit and announced country-specific reciprocal tariffs, marking the beginning of a new era of trade competition. Over the past three decades, the U.S. trade deficit has steadily expanded, eroding its manufacturing base and fueling job losses, which pushed the government to act. In response, the U.S. government strengthened protectionist trade policies to safeguard domestic industries and reduce the trade deficit, implementing aggressive trade measures under the America First policy. On July 7^th, against this backdrop, U.S. President Donald Trump officially announced that he would implement a 25% reciprocal tariff on August 1^st, in line with his campaign pledge. Following his announcement, the Trump administration implemented the tariffs starting in August, targeting major trading partners — including key allies — and causing significant disruption to the global supply chain. These measures heightened global trade uncertainty and prompted major economies to reassess their trade strategies and reorganize supply chains around the U.S.

-Countdown to Compromise

Amid the U.S. government’s aggressive trade moves, countries worldwide scrambled to stabilize their trade networks. For Korea, whose exports to the U.S. account for nearly 20% of its total exports, tariff changes were expected to have a significant economic impact, drawing close attention to the negotiations. In response to the tariff changes, the Korean government began preparing for formal negotiations. 

Just a week before the tariff negotiations, Korea’s Minister of Trade, Industry and Energy Kim Jung-kwan held an 80-minute meeting in Washington, D.C. with his U.S. counterpart, Secretary of Commerce Howard Lutnick. Then, a day before the deadline for the negotiations, Trump met with Korea’s Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol and other Korean officials at the White House for final talks. Finally, on July 31^st, the two governments announced a final agreement to cut the reciprocal tariff rate from 25% to 15%. In return, Korea pledged $350 billion in U.S. investments to boost cooperation in energy and other key industries. Thus, the Korea–U.S. tariff agreement was sealed after weeks of tense negotiations.

Redrawing Industry Lines

-Anchoring a New Alliance

One of the most closely scrutinized sectors in the recent Korea–U.S. tariff deal was shipbuilding. In particular, the Make American Shipbuilding Great Again (MASGA) Project was widely recognized as the primary driver of the tariff reduction, drawing even greater attention from industry players and investors. Echoing Trump’s Make America Great Again slogan, the MASGA Project is a $150 billion Korea–U.S. shipbuilding technology cooperation initiative to revive the U.S. shipbuilding industry, whose global market share had plunged to 0.1% by 2024. The fund will finance new U.S. shipyards, workforce training, and Maintenance, Repair, and Overhaul (MRO) for both naval and commercial vessels, with the goal of revitalizing the industry. As the U.S. rebuilds its shipbuilding capacity, Korean shipbuilders’ globally recognized expertise is expected to play a key role, offering strategic benefits for both nations. In particular, the MASGA Project is expected to provide Korean shipbuilders with a stable foothold in the U.S. market and expand long-term opportunities in the high-value vessel sectors. In an interview with the SKT, Kim Young-han, a Professor of Economics at Sungkyunkwan University, noted that if the MASGA Project proceeds as a commercial contract, it could serve as a catalyst for expanding the scope of Korea’s shipbuilding industry and securing various comparative advantages over its key competitor, China. On August 6^th, as the Korea–U.S. shipbuilding cooperation officially moved forward, HD Hyundai Heavy Industries, Korea’s largest shipbuilder, won the MRO contract for U.S. Navy logistics support vessels, underscoring the project’s commercial and strategic potential. As such, the MASGA Project is expected to serve as a new growth platform, bridging the strategic interests of Korea and the U.S. while enhancing industrial competitiveness.

- Shifting Gears: Korea’s Automotive Odyssey

The automotive sector is another area undergoing significant change under the new tariff deal. Under the previous Korea–U.S. Free Trade Agreement (FTA), tariffs on Korean automobiles imported into the U.S. were set at 0%. Beginning in April 2025, the Trump administration imposed steep tariffs under Section 232 of the Trade Expansion Act, abruptly raising costs on Korean automakers. However, through the new tariff agreement reached in July 2025, it was agreed that the tariff rate would be lowered, providing immediate relief from the industry’s burden. This aligned Korea with Japan and the European Union (EU) at 15%, cutting the previous rate by 10% points, and the industry generally viewed this as having overcome a pressing hurdle. The Korea Automobile & Mobility Association welcomed the deal in a July 31^st statement, highlighting that the agreement created a level playing field with Japan and the EU. However, the loss of the FTA’s zero-tariff benefit has reignited concerns. Unlike Japan and the EU, whose tariffs rose from 2.5% to 15%, Korea’s tariffs effectively jumped from 0% to 15% — a steeper rise that could further erode its pricing edge. At an August 6th industry roundtable hosted by the ruling People Power Party, President and Chief Executive Officer of Hyundai Motor Company Lee Dongseok noted, “Even with the deal, much of our comparative advantage over competitors has disappeared, and challenges persist.”

To mitigate nearly $4.35 billion in annual tariff costs faced by Korean automakers, policymakers are exploring various measures. One prominent idea is the socalled Korean Inflation Reduction Act, also known as the Domestic Production Promotion Tax System. This system would grant corporate tax credits for domestic production and sales, aiming to offset automakers’ losses. Responding to industry requests, Kim Jung-jae, Chair of the People Power Party’s Policy Committee, announced on August 7^th that the party would push legislation to introduce this tax scheme as part of a broader package to boost advanced industry competitiveness. The tariff reduction has offered Korean automakers breathing room, but they still face the challenge of adapting to a new competitive landscape.

Between Cheers and Caution

-Leveling the Playing Field

Amid a range of reactions to the recent Korea–U.S. tariff agreement, many have expressed a positive outlook. Foremost among the achievements cited is the 10% points reduction in tariffs.

Nam Young-sook, a Professor of International Studies at Ewha Womans University, told the BBC that, reaching a mutual tariff agreement despite the urgency of the situation was a success that helped avoid the worst-case scenario. Political news outlet Politico even described the negotiations as a domestic political victory for President Lee Jae-myung in the face of Trump’s tariff threats. Specifically, tariff cuts are expected to ease the losses faced by the auto industry, drawing broader positive assessments. According to Edaily, major automakers suffered monthly losses of about $380 million before the talks, whereas after the deal, that figure is expected to fall to around $230 million. Additionally, by securing the same tariff terms as key competitors such as Japan and the EU, Korean products would be able to maintain price competitiveness. According to the polling agency RealMeter, which surveyed about 1,000 adults on August 1^st, the top achievement ranked by respondents was “cutting the tariff rate to 15% and securing equal conditions with competitors.” This indicates that the public views the deal favorably in terms of maintaining fair pricing and achieving competitive parity with other major trade partners. As such, the Korea–U.S. tariff agreement is expected to serve as an important milestone in maintaining international competitiveness.

-Tides of Compliance

Alongside positive responses, some have raised concerns about the deal. One key issue is that Korea largely complied with the terms set by the Trump administration. Prof. Kim pointed out in an interview with the SKT, “The multilateral, rule-based international trading system has collapsed, and Trump’s personal whims now dominate global trade, creating chaos. It is regrettable that Korea went along with this.” He also warned that without restoring the multilateral trading system, machinery and materials industries — mainly driven by small and medium-sized enterprises lacking global technological competitiveness — could quickly collapse, and he suggested that the government and trade authorities consider policy coordination efforts to restore the free-trade order. A further concern is that the large-scale investment commitments made under the agreement could become a long-term burden on Korea’s economy. Under the deal, Korea pledged $350 billion in U.S. investments and $100 billion in U.S. energy imports — about 25% of GDP, the highest level among Japan, the EU, and Korea, according to the JoongAng Ilbo . What makes this investment level particularly worrying is the possibility that it could divert funds away from domestic reinvestment. Huh Jeong, president of the Korean Society of International Trade, told the Chosun Ilbo that if companies prioritize U.S. investments, domestic investment may be sidelined, so room should be left for reinvesting overseas profits at home. Thus, while the Korea–U.S. tariff agreement seemed to reshape the external competitive landscape, it also raised concerns over burdens on domestic industries and investments, leaving some disappointed.

Korea is reeling from the curveball thrown by Trump. The recent Korea-U.S. tariff deal has caused significant ripples through the Korean economy, presenting both new challenges and opportunities. Is this deal a half victory or a fresh starting line? No one knows where this unpredictable ball will bounce next. So, Kingos, keep a close eye on where it will land.