On the 31st, Korea and the United States agreed to establish a strategic industries cooperation fund worth $350 billion and import $100 billion worth of U.S. liquefied natural gas (LNG) under the condition that the United States will reduce the tariff rate on Korean products from 25% to 15%, a decrease of 10 percentage points. The 15% tariff rate is the same level that the United States negotiated with Japan and the European Union (EU). Considering that Korea and the United States had signed a free trade agreement (FTA), it is difficult to view the fact that the tariff rate could not be lowered compared to Japan or the EU positively. The item tariff rate imposed on steel, one of the main export products, was also not reduced.
However, the agricultural products market opening, including the easing of import thresholds for rice and beef that the United States has persistently demanded, was omitted from this agreement. U.S. President Donald Trump claimed on his Truth Social account following the U.S.-Korea trade negotiations that "Korea will completely open trade by accepting U.S. products, including automobiles, trucks, and agricultural products," but Deputy Minister Kim Yong-beom noted, "We agreed not to open rice and beef due to food security and sensitivity concerns." The opening of the agricultural products market is a sensitive area for a considerable number of citizens, including farmers. Deputy Minister Kim stated, "We focused on preventing additional openings of agricultural products while fully considering the sensitivity and historical background."
◇ Korean contributions: $350 billion fund for industrial cooperation, $100 billion for energy purchases
The first card proposed by the Korean delegation during the U.S.-Korea trade negotiations was the establishment of a fund worth $350 billion (approximately 487 trillion won). Of this, $150 billion will be allocated to the shipbuilding sector, which the United States has shown interest in. Deputy Minister Kim explained that it encompasses the entire shipbuilding industry, including shipbuilding and Maintenance, Repair, and Overhaul (MRO).
The remaining $200 billion will be utilized for cooperation in strategic industries such as semiconductors, nuclear power, secondary batteries, and biotechnology. It is not specified how much will be allocated to each field. Not all of the fund's amount will be invested directly in the U.S. through foreign direct investment (FDI). Deputy Minister Kim stated, "Most of the money will go into loans and guarantees," adding, "The proportion of direct investment is expected to be very low." Observations suggest that in the capital market, the actual investment amount is about 5%, with the rest likely being in the form of loans or guarantees.
Along with this, it has been stated that $100 billion will be used for energy imports, including U.S. LNG. This does not mean that Korea will import more than its domestic energy demand but rather that part of the energy previously imported from the Middle East will be switched to supply sources from the United States. While there are concerns that the export path will lengthen and costs will increase, assessments suggest that it is not unreasonable given that the international oil price differences are not substantial. Considering that the primary reason for U.S. trade pressure has been to address 'trade imbalance,' U.S. energy imports have been mentioned as the easiest card to alleviate trade imbalance.
Jang Sang-sik, president of the Korea International Trade Association, noted, "We managed to limit the U.S. energy imports to actually convert some of the Middle Eastern energy imports to U.S. sources," adding, "Given that the EU's energy purchase volume reaches $750 billion, and Japan has promised to purchase aircraft and agricultural products, we can evaluate that we concluded negotiations with a relatively lower burden."
◇ The automobile industry is the most affected by the trade agreement
The goal of the Korean delegation in this trade negotiation was to reduce the tariff rate below that of Japan and the EU, which are export competitors, as an FTA signatory country. In particular, there was an attempt to lower the tariff rate on automobiles, the largest export item to the U.S., which is in direct competition with Japan and the EU, to gain a competitive advantage in exports. However, the tariff rate was ultimately confirmed at the same 15% level as Japan and the EU.
Since Korea signed an FTA with the United States, it has been exporting automobiles to the U.S. without any tariffs. In contrast, a tariff of 2.5% has been imposed on Japanese and European automobiles. This tariff gap has played a significant role in increasing the market share of Korean cars in the U.S. market. Consequently, the delegation strongly demanded that only the 12.5% tariff increase applied to Japan and the EU be imposed on Korea, but the U.S. side rejected this, resulting in a failure. Regarding this, Deputy Minister Kim stated, "We insisted on 12.5% until the end, but in the U.S. decision-making process, it was stated that 'it's done, and we understand, but President Trump says it's all 15%.'"
As a result, the minimum tariff rate of 15% proposed by President Trump was established, and the tariff gap between Korea, Japan, and Europe has disappeared due to this trade agreement. Concerns have been raised that the price competitiveness of Korean automobiles in the U.S. market will weaken, leading to a decrease in exports to the U.S.
In this context, President Jang Sang-sik stated, "If shipbuilding is the biggest beneficiary sector of this negotiation, the automobile sector is the biggest victim," adding, "The price advantage of Korean cars based on the FTA has disappeared."
In addition, steel, one of Korea's major export items, was excluded from this agreement. A tariff of 50% on steel products will continue to be imposed in the future.
Some have pointed out that the scale of the industrial cooperation fund might be set too high, given that the practical benefits obtained are not significantly more than Japan's. Previously, Japan, which reached a trade agreement with the United States, promised a fund investment worth $550 billion. It has been reported that the initially requested amount of $400 billion was increased to $550 billion at the final negotiation table.
The fund investment amount promised by Korea to the United States is $350 billion, which is 63.6% of the amount promised by Japan. Although the absolute size is small, considering the economic size gap between Japan and Korea (2.2 times), it has been argued that the amount promised by Korea is not small.
Perhaps aware of these criticisms, Deputy Minister Kim stated, "It is difficult to simply compare the scale of the investment funds between Japan and us based solely on economic size," explaining, "In a situation where the trade deficit with the United States as of 2024 is similar between Korea and Japan, we decided to establish an investment fund of $350 billion, which is smaller than Japan's. Moreover, excluding the $150 billion shipbuilding fund led by our corporations, our fund size is only $200 billion, which is merely 36% of Japan's."
◇ Will agricultural products be discussed at the summit... Koo Yun-cheol noted, "Trump showed interest in the quarantine process for fruits and vegetables"
The agricultural products market opening issue, identified as a non-tariff barrier against Korea in the U.S. National Trade Estimate (NTE) report, was not included in this Korea-U.S. trade agreement. The negotiating delegation maintained a firm stance on this issue considering public sentiment, and successfully insisted on omitting it from the final agreement.
Koo Yun-cheol, Deputy Prime Minister and Minister of Economy and Finance, the head of the negotiating delegation to the U.S., stated during a briefing at the Korean embassy in Washington, D.C. on the 30th (local time) that "it is a fact that there were strong demands from the U.S. side regarding reducing non-tariff barriers and expanding market opening for agricultural products," adding, "In today's meeting, President Trump also inquired about Korea's quarantine procedures for fruits and vegetables, showing considerable interest."
Deputy Prime Minister Koo continued, "As a result of the delegation's persistent explanations, the U.S. understood the sensitivity of our agriculture and agreed not to take additional market opening actions," adding, "However, regarding technical matters including improvements in quarantine procedures, we agreed to continue discussions in the future."
However, considering that President Trump stated on social media that "Korea will fully open trade by accepting U.S. products, including automobiles, trucks, and agricultural products," there is also speculation that this issue may be addressed at the Korea-U.S. summit scheduled to be held in two weeks.
Deputy Minister Kim commented on President Trump's remarks, saying, "We understand it as expressions from a political leader," suggesting that it could be a political statement considering his support base. Deputy Minister Kim also responded to Howard Lutnick, U.S. Secretary of Commerce's statement that "the U.S. would take 90% of the profits from the fund Korea established," saying, "The structure of the fund itself has not been defined yet, so it is not specific who will invest how much, making it difficult to reasonably discuss a 90 to 10 profit split. We do not know what the U.S. is thinking in this regard."