Tariff deal buys time for Korea, but real challenges lie ahead

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Tariff deal buys time for Korea, but real challenges lie ahead

Published: 01 Aug. 2025, 00:00

Audio report: written by reporters, read by AI

U.S. President Donald Trump said he was ″pleased to announce that the United States of America has agreed to a Full and Complete Trade Deal with the Republic of Korea” along with this image in a post uploaded to the White House's X account on July 31. [SCREEN CAPTURE]

Korea and the United States reached a last-minute agreement on tariffs just two days before the Aug. 1 deadline for mutual duties, avoiding the worst-case scenario of steep levies on Korean exports.

U.S. President Donald Trump announced the deal at the White House on July 30 after meeting with a Korean delegation. He said Korea agreed to invest $350 billion in the United States and to import $100 billion worth of U.S. liquefied natural gas. Tariffs on Korean products will be set at 15 percent, while U.S. goods will face no new duties. President Lee Jae Myung confirmed the agreement on social media, saying the government had “cleared a major hurdle.”

The outcome is being seen as a defensive success, as it blocked the 25 percent tariffs that Washington had threatened and aligned Korea’s rate with those applied to Japan and the European Union. Sensitive sectors, such as rice and beef, appear to be spared from further market openings, and sensitive issues such as the export of high-resolution Korean maps to foreign servers were not part of the negotiations. For the Lee administration, which has yet to hold a bilateral summit since taking office in May, the deal reduces immediate diplomatic pressure.

Yet the government is cautioned against calling the deal a complete victory. The real test lies in implementation and whether Korea can secure tangible benefits. U.S. Commerce Secretary Howard Rutnick has said that 90 percent of profits from the Korean investment fund would go to the United States. If the profit-sharing structure proves lopsided, Korean firms may face significant strain. Moreover, $200 billion of the pledged fund relies on capital call commitments rather than immediate cash, potentially leaving control in U.S. hands and creating room for future disputes.

Industrial concerns are also mounting. Korean automobiles, previously duty-free under the bilateral FTA, will now face 15 percent tariffs alongside Japanese cars, which had been at 2.5 percent. The $150 billion U.S. shipbuilding revival initiative, “Make American Shipbuilding Great Again,” could also siphon off Korean skilled labor and advanced production capabilities.

Export-bound cars are lined up at Pyeongtaek Port in Gyeonggi on July 24. [YONHAP]

Korean companies inevitably must expand in the United States to stay competitive in a market reshaped by supply chain realignments. But the risk of domestic industrial hollowing is rising, and some economists question whether a $350 billion commitment is excessive given Japan’s economy is more than twice Korea’s size. Offsetting these shocks will require robust domestic policies to sustain corporate vitality.

Instead, the government has announced a 1 percentage point increase in the corporate tax rate to 25 percent, alongside plans for tougher commercial law revisions and the so-called Yellow Envelope Act. Firms now face the dual burden of expanding overseas while navigating heavier regulation at home. Having relied on corporate efforts to dodge a tariff crisis, the government will need to provide meaningful support to preserve competitiveness beyond rhetoric about market pragmatism.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.