Japan and the European Union (EU) have concluded a tariff agreement with the United States, putting pressure on our government. Japan and the EU succeeded in lowering mutual tariffs and automobile tariffs to 15% each in exchange for promising astronomical levels of investment in the U.S.
Korea's economic structure is heavily reliant on exports. Moreover, Korea's largest export item to the U.S. is automobiles. Concerns are rising that without lowering tariffs further, Korea may lose export competitiveness against Japan and the EU in the U.S. market. The government is reportedly proposing a $trillion-scale shipbuilding cooperation project called "Make American Shipbuilding Great Again" (MASGA) and is engaging in a total trade offensive by heading to Europe following the U.S. negotiation team.
◇ Korea in a crisis, 45% of top 20 export items to the U.S. overlap with key exports from Japan and the EU
According to foreign media and the U.S. government on the 28th (local time), the EU pledged to purchase $750 billion worth of U.S. energy and invest $600 billion, obtaining mutual tariffs and automobile tariffs reduced to 15%. Japan, too, has secured similar tariff benefits by committing to a $550 billion investment in the U.S., expanding imports of U.S. rice, and purchasing 100 Boeing aircraft.
The problem is that the EU and Japan are Korea's biggest competitors in the U.S. market. According to the Korea International Trade Association, last year, 8 out of Korea's top 20 export items to the U.S. (based on HS codes) overlapped with the 20 major export items of the EU and Japan. These included ▲automobiles ▲automobile parts ▲petroleum and asphalt ▲machinery ▲transformers, which accounted for 45% of total exports to the U.S.
The competition among Korea, Japan, and the EU is fiercest in the automobile sector. Korean automobiles have maintained their position as the third largest exporter to the U.S. based on about 5% lower price competitiveness than equivalent Japanese and EU models. However, if tariffs are not reduced, an inevitable decline in market share in the U.S. can be expected due to Japan and the EU.
Professor Lee Ho-keun of DAEDUCK University said, "If only Korea maintains a 25% automobile tariff, the price of vehicles sold for 67 million won ($49,000) in the U.S. will rise to 75 million won, and sales could decrease by more than 20%." He added, "Even if the tariff were reduced to 15%, the situation would still be unfavorable compared to U.S. automakers like GM, Ford, and Stellantis," noting, "In that case, a price increase of at least 4 million won would be unavoidable."
Trade experts believe that for Korean cars to maintain price competitiveness, they need to secure a tariff level lower than '12.5%' compared to Japan and the EU. Choi Seok-young, senior advisor at Lee & Ko, noted, "Japan and the EU previously had a 2.5% automobile tariff, but Korea was exempt from tariffs," stating, "To compete under similar conditions as before, it must be adjusted to at least 12.5%."
Adding to the complexity, the potential imposition of tariffs on semiconductors and biotechnology by Trump poses significant pressure on the Korean government. Following Trump's administration's introduction of "item-specific tariffs", existing key export items to the U.S., such as automobiles and steel, have been destabilized, raising concerns about the export of semiconductors and biopharmaceuticals, which have been rapidly increasing to the U.S. recently. This has prompted calls for addressing semiconductor tariffs in the current negotiations.
◇ D-4 until tariff imposition... Korea's trade team increases contact with the U.S.
With just four days until the tariff implementation date, the Korean negotiation team is also restructuring strategies and expanding contacts with the U.S. Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol is scheduled to negotiate directly with U.S. Treasury Secretary Scott Bessent on the 31st. On the same day, Minister of Foreign Affairs Park Jin will also meet separately with Secretary of State Marco Rubio.
Minister of Trade, Industry and Energy Kim Jeong-kwan and Head of the Trade Negotiation Headquarters Yeo Han-koo are reported to have traveled to Europe in line with the U.S. negotiation team's schedule, following two meetings with U.S. Secretary of Commerce Howard Lutnick. As Secretary Lutnick, U.S. Trade Representative Jamieson Greer, and Treasury Secretary Scott Bessent head to Europe for trade negotiations, they have gone in search of a breakthrough and to continue face-to-face contacts.
The government proposed establishing an investment fund worth about $200 billion (approximately 276 trillion won) alongside the shipbuilding cooperation project "MASGA" in negotiations with Secretary Lutnick. MASGA is named after Trump's slogan "Make America Great Again", aiming to secure tariff reductions in exchange for assisting in the rebuilding of the U.S. shipbuilding industry.
This is due to the large-scale investments previously promised by the EU ($600 billion) and Japan ($550 billion), along with ongoing demands for similar large-scale investments from the U.S. However, from Korea's perspective, where nominal GDP is about half that of Japan, investing $200 billion is also burdensome. A notable difference is that since the Biden administration's inception, investments in the U.S. have rapidly increased.
Choi Seok-young noted, "Having already made substantial investments in the U.S. for several years, mobilizing large-scale funds again is quite burdensome," suggesting, "It might be necessary to negotiate in a way that acknowledges existing investment amounts."
Meanwhile, the government's proposal of the "shipbuilding card" is seen as both an opportunity and a risk. Yang Jong-seo, a senior researcher at The Export-Import Bank of Korea, stated, "While there is a potential for revenue if entering the U.S. naval market, there are enormous restoration expenses for the ecosystem, including not only immediate shipyard acquisitions but also facility investments and workforce and equipment," emphasizing that resolving relevant regulations and sharing restoration costs with the U.S. is crucial to avoid failure.