Korea, U.S. agree on tariffs, $350 billion investment

South Korea and the United States reached a surprise tariff deal on July 30, U.S. time. Mutual tariffs on Korean goods, initially set at 25 percent, and the 25 percent duties on automobiles and parts will be lowered to 15 percent. This rate matches the level applied to major competitors such as Japan and the European Union, helping avoid the worst-case scenario. The deal also protects South Korea from further agricultural market openings, including rice and beef, which were strong U.S. demands. Additionally, requests by U.S. big tech for exporting ultra-precise mapping data, which could pose security risks, were excluded from the talks.

Korean President Lee Jae-myung said on the same day, “After gathering various opinions and refining our strategy repeatedly, we finally reached a tariff agreement.” U.S. President Donald Trump said, “We have reached a full and comprehensive trade agreement with Korea.” Although there were concerns negotiations might extend beyond the August 1 deadline, the talks were quickly resolved after President Trump’s first meeting. This settled a major uncertainty surrounding the South Korean economy.

To convince the United States, South Korea pledged $350 billion in investments. Most of the funds will likely be contributed by Korean companies. Executives from Samsung Electronics, Hyundai Motor, and Hanwha Ocean reportedly played a major role supporting negotiations on the ground.

The deal prevents South Korea from competing at a tariff disadvantage compared to rivals. However, the real challenge of protecting its two largest export markets—the United States and China—begins now. The automotive and parts industries, South Korea’s biggest export sectors to the U.S., lose the zero-tariff benefits under the Korea-U.S. Free Trade Agreement. This removes a tariff advantage of 2.5 percent over Japan and the European Union. Companies must now offset the lost tariff benefits through quality and marketing efforts.

During negotiations, South Korea offered a key concession to reduce tariffs: investing $150 billion in U.S. shipbuilding through the Make American Shipbuilding Great Again, or MASGA, project. This includes loans and guarantees. South Korea will also establish a $200 billion fund to invest in U.S.-designated industries. Although the total $350 billion investment is lower than the $400 billion initially demanded by the United States, it remains a huge burden for the South Korean economy, equivalent to about 70 percent of the government’s annual budget.

Beyond the amount, the details of the investment fund could significantly affect the overall gains and losses. When and how the fund is created, and how profits are shared, remain crucial issues. The United States says it will take 90 percent of returns, while South Korea argues the 90 percent will be reinvested, highlighting a major difference. Negotiators must also ensure Korean companies’ investments are prioritized in semiconductors, automobiles, secondary batteries, nuclear power, and biotechnology. Support measures are needed for steel and aluminum industries, which face severe damage from 50 percent tariffs.

Although uncertainties have decreased, companies that previously exported to the United States without tariffs will face higher costs. Firms establishing plants in the United States must also overcome challenges such as high wages and inflation. The risk of hollowing out domestic manufacturing and job losses could accelerate as investments shift abroad. Therefore, physical and institutional incentives for companies investing in South Korea have become even more important.