Korea and the United States have not narrowed their differences over a $350 billion (about 488 trillion won) investment fund for the U.S. market. If the tariff rate rises from 15% to 25%, the additional tariff applied annually to Korean-made products is estimated at $26.07 billion (about 36 trillion won).
Park Su-yeon, a Meritz Securities researcher, said this in a report on the 16th. Earlier, Korea and the United States, through trade talks, pledged a $350 billion investment fund for the U.S. market in return for lowering the tariff rate to 15% from 25%. The $350 billion amounts to 84% of Korea's August foreign exchange reserves ($416.3 billion).
Contrary to Korea's expectations, the Donald Trump administration is demanding that the investment fund for the U.S. market be put in as "cash." Because there is no clear way to raise the money, some are saying that a 25% tariff rate might be better.
According to the U.S. International Trade Commission (USITC), from May to Jul. this year, when a 10% tariff rate applied, Korea paid an average of $1.39 billion per month in tariffs to the United States. Based on that, if a 15% tariff rate applies, Korea would pay $24.94 billion annually to the United States. If the tariff rate rises another 10 percentage points to 25%, Korea would have to pay an additional $26.07 billion.
The researcher Park explained that the annual increase in tariffs ($26.07 billion) is 7.5% of the $350 billion investment fund for the U.S. market and would be paid out over about 13 years and 6 months.
Korean corporations can lessen the burden by passing tariffs on to consumer prices, but that creates a problem of losing price competitiveness. For automobiles right now, unlike Japanese models, which are subject to a 15% tariff rate starting today, Korean models face a 25% tariff rate.
What is clear is that neither a 15% tariff rate plus a $350 billion investment fund for the U.S. market nor a 25% tariff rate is favorable to Korea. Park said, "If the deal does not improve further, the won-dollar exchange rate will continue its medium- to long-term upward trend against the U.S. dollar due to concerns about the structural economic power gap between the United States and Korea."