Home > Business > Economy

Japanese tariff deal with U.S. ups pressure on Korea ahead of crucial talks

Published: 23 Jul. 2025, 19:19 Updated: 07 Sep. 2025, 18:26

U.S. President Donald Trump waves as he greets Japanese Prime Minister Shigeru Ishiba upon arrival outside the West Wing of the White House in Washington on Feb. 7. [AP/YONHAP]

Japan's trade agreement with the United States, which lowers "reciprocal" tariffs on Japanese goods from 25 percent to 15 percent, has increased pressure on Korea to finalize a similar deal — and quickly.

Korea and Japan are export competitors in the global market, and their export items and volumes to the United States are similar, making them inevitably affected by differences in tariff rates.

The Korean government is now under pressure to conclude negotiations during the upcoming Korea-U.S. 2+2 trade dialogue, scheduled to begin on Friday. Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol and Trade Minister Yeo Han-koo are scheduled to attend the talks, which will cover trade, economic, and security cooperation.

On Tuesday, U.S. President Donald Trump announced the agreement with Japan via his social media platform, Truth Social, revealing that the two countries had settled on a 15 percent "reciprocal" tariff — down from the 25 percent initially declared in a letter to Japan on July 7.

Crucially, the 15 percent tariff also applies to automobiles and car parts, giving Japan an advantage over other auto exporters, which have faced 25 percent tariffs since April.

In exchange, Japan offered significant concessions, including a $550 billion investment pledge, opening its agricultural market to U.S. products such as rice, liberalizing its auto and truck sectors and participating in investment in the Alaska LNG (liquefied natural gas) project.

“Korea was quietly hoping for a postponement of the Aug. 1 tariff deadline, but Japan’s successful deal undercut that strategy,” said a trade expert, who spoke on condition of anonymity. “Now Korea must present an even stronger negotiation card.”

Japanese Prime Minister Shigeru Ishiba speaks to the media as U.S. President Donald Trump announces a trade framework with Japan, at the prime minister's office in Tokyo, on July 23. [AP/YONHAP]

At the heart of Japan’s agreement is its $550 billion investment pledge. This was reportedly proposed in May by SoftBank Chairman Masayoshi Son to U.S. Treasury Secretary Scott Bessent as a sovereign fund jointly established by the United States and Japan to invest in advanced technology and infrastructure.

Initially envisioned at $300 billion, the proposal was expanded to $400 billion during negotiations and finalized at $550 billion, according to foreign media outlets.

This fund is structured with joint contributions from the U.S. Department of the Treasury and Japan’s Ministry of Finance and invests in advanced technology and infrastructure. The specific method of financing the investment has not been disclosed in detail. It is expected to take various forms involving both government and private sector participation.

Trade Minister Yeo Han-koo speaks to reporters upon arriving in Incheon International Airport following a trip to Washington on July 10. [NEWS1]

During the Abenomics period (2013–2020), Japan made infrastructure and energy investments in the United States, with policy finance institutions such as the Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (NEXI) providing public funds, and commercial banks and private companies participating.

Global trading platform Mitrade analyzed that “Japan’s investment will not be a simple investment but a form that combines loans, guarantees and investments.”

It is also possible that companies in the United States could undertake projects using loans from Japanese financial institutions.

Korea's Trade Minister Yeo Han-koo arrives at Dulles International Airport near Washington on July 22. [YONHAP]

In early July, Korea's Trade Minister Yeo reportedly received a similar request from U.S. Secretary of Commerce Howard Lutnick — a $400 billion investment fund comparable to Japan’s, which would match or exceed Korea’s $410 billion in foreign reserves. Korea Investment Corporation’s (KIC) assets under management stood at 300 trillion won ($217 billion) as of the end of last year.

Should the government proceed with such an initiative, state policy banks, such as Korea Development Bank and Korea Eximbank, would likely be core investors, with additional backing from conglomerates, pension funds, and financial institutions.

The use of KIC’s sovereign fund has been floated as one option, and officials are reportedly considering a project-specific allocation system to manage risks.

President Lee Jae Myung recently met with LG Group Chairman Koo Kwang-mo and Hyundai Motor Group Executive Chair Euisun Chung, raising speculation that U.S. investment requests were on the agenda.

President Lee Jae Myung, right, and LG Group Chairman Koo Kwang-mo shake hands as they pose for a photo during their meeting at the presidential office in Yongsan, central Seoul, on July 15. [PRESIDENTIAL OFFICE]

“While the government might support the effort with policy financing or pension fund allocations, a direct government investment is unlikely,” said Kang Sung-jin, a professor of economics at Korea University. “The more probable route is to incentivize private firms to lead the effort.”

Still, experts warn that it will be difficult to mobilize hundreds of billions of dollars through corporate investment alone.

“Hyundai has already invested heavily in the United States,” said one professor who requested anonymity. “And other companies have limited capacity to raise over $100 billion.”

“If Korea moves forward, the package will likely combine new corporate investments, equity in U.S. markets, pension fund contributions and loan guarantees to approach Washington’s demands,” said another professor.

People react as they read a special edition of Yomiuri Shimbun newspaper reporting the tariff deal between the United States and Japan, in Tokyo on July 23. [REUTERS/YONHAP]

Another conundrum for Korea arises from Japan's yielding of its rice market. Japan also agreed to open its rice market, a longstanding sticking point in U.S.-Japan negotiations, raising concerns that Korea may be pressured to make similar concessions on beef and rice imports.

Japanese Prime Minister Shigeru Ishiba explained, “We will secure the necessary amount of U.S. rice within the framework of the Minimum Market Access [MMA] import commitment.”

In Korea, trade officials who hinted at opening agricultural markets faced swift backlash from lawmakers and farmer advocacy groups. As a result, Seoul is likely to draw a red line against including rice and beef in the negotiation.

Nonetheless, given that all countries that reached a deal — including Japan — opened up their agricultural markets, some level of concession may just be inevitable.

Finance Minister and Deputy Prime Minister Koo Yoon-cheol presides over an external economic affairs ministers’ meeting at the Government Complex Seoul in Jongno District, central Seoul, on July 22. [MINISTRY OF ECONOMY AND FINANCE]

“Japan won tariff reductions in exchange for its rice market, a significant concession,” said Park Sung-hoon, professor emeritus at Korea University’s Graduate School of International Studies. “Korea may not be able to avoid similar partial liberalization.”

Some also point out that, with the United States demanding the easing of digital regulations, such as the proposed Online Platform Fairness Act and network usage fees, Korea should put these on the table along with other nontariff barriers, including agricultural and livestock products, and use them as leverage for negotiations.

On the other hand, Japan’s decision to open its vehicle and truck market is seen as a manageable concession for Korea. The United States has long demanded better access for its automakers, but analysts say that even with regulatory changes, U.S. car sales in Korea are unlikely to rise due to consumer preferences.

However, Japan’s commitment to invest in the Alaska LNG project poses a challenge for Korea, which has historically been cautious about risky infrastructure investments such as pipelines.

Kang Moon-sung, a professor at Korea University’s Graduate School of International Studies, suggested that “since Japan is now participating in Alaska development, Korea could consider a cooperative or joint investment approach.”

Japan's Prime Minister Shigeru Ishiba looks on after meeting with the Liberal Democratic Party's (LDP) leadership at the LDP headquarters in Tokyo on July 23. [REUTERS/YONHAP]

Ultimately, Korea’s core trade proposal — the “manufacturing renaissance partnership,” which includes cooperation on shipbuilding, semiconductors, nuclear power and batteries — may become more important. As a differentiated offering from Japan, it could be key to achieving reciprocal tariff reductions.

“Japan managed to secure the largest tariff cut and the first reduction on auto tariffs among U.S. trade partners,” said Chang Sang-sik, head of trade trend analysis at the Korea International Trade Association. “Korea must now accelerate its efforts to reach a deal by the end of July.”

Yeo, who arrived in the United States Wednesday, said, “We will meet with U.S. government officials as well as stakeholders, and there are parts where we need to persuade them,” adding, “We intend to try everything we can.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM WON [[email protected]]