With the conclusion of tariff negotiations between the U.S. and Japan, the burden on the trade negotiation team of the Lee Jae-myung government has increased. Japan has agreed to lower the reciprocal tariff of 25% imposed by the United States and the tariffs on automobile items to 15%. Concerns have emerged that if Korea fails to receive a reduction in automobile tariffs to this level, its exports to the U.S. could drastically decline due to a loss of price competitiveness against Japanese cars.
According to the governments of the United States and Japan on the 23rd, Japan has decided to open its automobile market and some agricultural markets, such as rice, which it had not previously opened during this negotiation. It was also reported that Japan promised large-scale investments in the Alaska liquefied natural gas (LNG) project. A significant portion of Japan's investment in the U.S. is expected to be directed toward the Alaska LNG project.
U.S. President Donald Trump said on the 22nd (local time) that "we have successfully forged the largest transaction with Japan in history," adding that "Japan will invest $550 billion (758 trillion won) in the United States, and the U.S. will gain 90% of the profits from this." Initially, the amount the U.S. demanded from Japan was known to be around $400 billion (approximately 550 trillion won), making the final figure larger.
A notable aspect of the recent U.S.-Japan negotiation is the reduction of automobile tariffs. A Japanese government official stated, "The United States has decided to reduce the 25% tariff imposed on Japanese automobiles to half, at 12.5%." Adding the basic tariff on Japanese automobiles to the U.S. of 2.5% results in a final tariff rate of 15%.
Considering that President Trump has maintained the position that "tariffs on items such as steel and automobiles cannot be lowered," it is evaluated that the Japanese government has achieved considerable results. So far, the only countries that have managed to extract reductions in item-specific tariffs from the U.S. are the United Kingdom and Japan.
Automobiles are Korea's top export product to the U.S. and are the most competitive area with Japan. Last year, of Korea's export amount of $127.8 billion to the U.S., automobiles ($34.7 billion) and automobile parts ($7.1 billion) accounted for one-third. In particular, Hyundai Motors, Kia, Toyota, and Honda are in direct competition as they have similar main model categories and price ranges.
From Korea's perspective, the immediate task of reducing automobile tariffs has been placed upon it. Choi Seok-young, an advisor who previously served as the chief economic negotiator at the Ministry of Foreign Affairs, noted, "While reducing the basic tariff is important, it is more critical that Korea does not face a disadvantageous tariff compared to other countries on key items such as automobiles and steel."
Accordingly, on the 25th, Deputy Prime Minister and Minister of Economy and Finance Ku Yun-cheol and Trade Negotiation Chief Yeo Han-koo are set to meet with U.S. Treasury Secretary Scott Bessent and Jamieson Greer, the U.S. Trade Representative (USTR), at the 'Korea-U.S. 2+2 trade consultation' to see if they can achieve a reduction in tariffs on domestic cars, attracting attention from the industry.
If the United States does not accept our negotiation proposals and continues to demand excessive investments, the negotiations may face obstacles. The U.S. is said to have requested the establishment of a $400 billion 'Manufacturing Cooperation Enhancement Fund' from our government. This amount corresponds to approximately three months worth of Korea's nominal Gross Domestic Product (GDP), which raises concerns about its realistic feasibility.
Our government plans to negotiate centered on the 'Manufacturing Renaissance Partnership' to strengthen cooperation in strategic industries such as shipbuilding, semiconductors, and batteries. Energy cooperation is also a key card. Korea Gas Corporation reviewed a plan to double the annual import volume of U.S. LNG at its board meeting in April, and Korea National Oil Corporation (KNOC) signed a contract to purchase 2 million barrels of U.S. crude oil on the 9th of this month.
The government will launch a full-scale effort to advance the negotiations. First, Minister of Trade, Industry and Energy Kim Jeong-gwan will visit the U.S. from the 23rd to the 25th and meet with U.S. Secretary of Commerce Howard Lutnick, Secretary of Energy Chris Wright, and Doug Burgum, the chair of the National Energy Commission, to discuss energy cooperation. A trade official stated, "During this visit, Korea and the U.S. will focus on discussing cooperation plans across the energy sector."
There are also analyses suggesting that it is inevitable to ease non-tariff barriers in some agricultural sectors to persuade the United States. Ryu Ye-ri, a professor at Gyeongsang National University, said, "Japan also made a bold decision to open its rice market, which is politically sensitive, and we too need flexible judgment considering national interests."
Experts have suggested that preparing a final government proposal that can persuade the U.S. by studying the U.S.-Japan negotiations is key. Professor Ryu said, "If we also make quantitative investment proposals like Japan, we could achieve progress in negotiations." Advisor Choi Seok-young also mentioned, "Just as Japan and the U.S. drew tariff reductions through broader agreements rather than specific proposals, a strategic approach is necessary, and there are many lessons to learn from Japan's method."