Korea faces pressure amid U.S.-Japan tariff pact

The United States and Japan have unexpectedly agreed to set tariffs on Japanese exports to the U.S. at 15 percent, lowering the rate by 10 percentage points from the 25 percent initially proposed by Washington. This rate is now the second-lowest among countries that have reached tariff agreements with the U.S., following the United Kingdom’s 10 percent. Tariffs on Japanese cars and auto parts will also be reduced to 15 percent. In exchange, Japan committed to further opening its agricultural markets, including rice, and boosting investment in the United States.

With South Korea’s tariff suspension agreement with the U.S. set to expire on August 1, Seoul is now in the final stages of negotiations. To compete with Japan in the U.S. market, Korea faces pressure to secure terms that are either more favorable or at least on par with Japan’s deal.

U.S. President Donald Trump on July 22 hailed the deal as “the largest agreement ever concluded with Japan,” while Japanese Prime Minister Shigeru Ishiba confirmed the agreement includes tariff cuts on cars and auto parts without import quotas. The final 15 percent rate consists of a 12.5 percent tariff added to the existing 2.5 percent.

Though full details were not disclosed, Japan is expected to significantly raise its annual tariff-free import quota for U.S. rice, currently set at 340,000 tons. Tokyo also agreed to participate in joint ventures for developing Alaskan liquefied natural gas and to create a $550 billion investment fund for the U.S. These concessions demonstrate Japan’s readiness to offer politically sensitive agricultural products to safeguard its key export sectors.

Attention now turns to South Korea. Like Japan, about one-third of South Korea’s exports to the U.S. are cars and auto parts. Seoul also faces pressure to increase imports of American agricultural products such as rice and fruit and to join U.S. liquefied natural gas projects. Additionally, Washington is urging Korea to ease restrictions on U.S. beef over 30 months old and to relax rules on the overseas transfer of high-precision maps.

With final negotiations between the two countries set for July 25 in the U.S., Seoul has yet to clarify which concessions it is willing to make if necessary. It also has not outlined a strategy to capitalize on Korea’s strengths, such as its shipbuilding and defense industries, to counterbalance pressure in other sectors.

Japan’s agreement has become the de facto benchmark that Korea must meet or exceed. If Seoul cannot lower the proposed 25 percent tariff, Korean automakers, with a smaller U.S. production presence than their Japanese competitors, could face significant disadvantages. As the deadline approaches, some business leaders warn that Korea may need to make short-term sacrifices to safeguard long-term national interests. With time running out, the government must determine which core interests are worth defending to the very end.