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Will Trump's '5 percent rule' help Korea win at the tariff table?

Published: 25 Jul. 2025, 07:00

President Donald Trump speaks at an AI summit hosted by All-in Podcast and Hill & Valley Forum at the Andrew W. Mellon Auditorium on July 23, 2025, in Washington, D.C. [GETTY/YONHAP]

With the Korea–U.S. “2+2” ministerial talks on trade and economics canceled just one day before they were scheduled to take place on Friday, the Korean government is reportedly preparing to use increased defense spending — a key interest of U.S. President Donald Trump's — as part of a “package deal” linking trade and security.

Trump has been pressuring U.S. allies to adopt what he calls the “5 percent rule,” under which defense budgets must reach 5 percent of GDP. According to the Korean government’s own calculations, Korea’s defense budget could surpass 3 percent of GDP by the end of Trump’s term.

A copy of the Ministry of National Defense’s 2025–2029 Mid-Term Defense Plan obtained by the JoongAng Ilbo shows that the government aims to raise the defense budget by an average of 7.3 percent annually from this year through 2029. The five-year projection was finalized in December of last year.

Under the plan, Korea’s defense budget was calculated as 62 trillion won ($45 billion) for 2025. The actual figure for 2025 is 61.2469 trillion won, and the defense budget takes up 2.3 percent of GDP. Under the five-year plan, the amount is aimed at increasing to 72.352 trillion won in 2027, 78.324 trillion won in 2028 and 84.7073 trillion won in 2029.

Over the five-year period, Korea will invest a total of 364.2 trillion won in defense — up roughly 4.4 percent from the previous five-year plan’s total of 348.7 trillion won.

U.S. Forces Korea (USFK) helicopters are seen at Camp Humphreys in Pyeongtaek, Gyeonggi, on April 9. [YONHAP]

U.S. Forces Korea (USFK) armored vehicles are seen in Dongducheon, Gyeonggi, on March 10. [YONHAP]

Based on projected GDP growth, the government believes it can reach a defense-to-GDP ratio in the low-to-mid 3 percent range by January 2029, the end of Trump’s term. Calculations using GDP growth forecasts from the National Assembly Budget Office suggest the 2029 defense budget would represent between 2.7 and 3.3 percent of GDP.

Members of NATO — to which Trump first introduced the 5 percent rule — have adopted a combined formula of 3.5 percent for direct defense spending and 1.5 percent for indirect contributions, to meet the 5 percent target by 2035. Other countries are expected to follow a similar approach. For Korea, the 3.5 percent goal appears to be within reach based on current projections.

This explains why the Korean government initially leaned into a package deal linking trade and security. By offering defense spending increases as bargaining chips, Korea aims to secure concessions in sensitive nontariff areas such as rice and beef imports.

“It is understood that the White House has already been informed that increasing Korea’s defense budget to the 3 percent range within Trump’s term is feasible,” said a source familiar with the matter.

National Security Adviser Wi Sung-lac answers briefs reporters on the outcomes of his visit to the United States at the Incheon International Airport on July 24. [JOINT PRESS CORPS]

However, the United States has taken a two-track approach with Japan and the European Union, keeping defense spending negotiations separate from trade talks. While the Korean government believes Washington has agreed in principle to a package deal based on a long-term vision for the Korea–U.S. alliance, there is still a risk that Trump could later demand separate negotiations on tariffs and defense.

Some observers now worry that the sudden cancellation of the 2+2 meeting reflects Washington’s lack of enthusiasm for Korea’s proposal. Trump’s ultimate priority, they say, is dismantling nontariff barriers.

Regarding National Security Adviser Wi Sung-lac's visit to the United States from Sunday to Wednesday, the presidential office stated, “The trip was aimed at supporting upcoming sector-specific talks in the economic field through overarching discussions on security and the economy.”

Wi held several meetings, but was unable to meet directly with U.S. Secretary of State and National Security Adviser Marco Rubio due to a last-minute change in Rubio’s schedule. Instead, the two spoke on the phone.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY LEE YU-JUNG [[email protected]]