Starting from the 1st of next month, the United States has reduced the reciprocal tariff it plans to impose on Korea from 25% to 15% through negotiations, providing some relief; however, experts have evaluated this outcome as somewhat disappointing. To lower the reciprocal tariff, our negotiation team presented various gifts to the United States, resulting in considerable concessions. In exchange for a 10 percentage point (p) reduction in the reciprocal tariff, Korea promised an investment of $35 million (approximately 48.6 trillion won) in the United States and forfeited the tariff-free benefits arising from the Korea-U.S. Free Trade Agreement (FTA).
Jeong In-gyo, former head of the Trade Negotiation Headquarters at the Ministry of Trade, Industry and Energy, evaluated on the 31st that "we avoided the worst-case scenario, but this is a second-best result." Jeong served as the head of trade negotiations for the Yoon Suk-yeol government and led talks regarding tariffs with the United States until last month.
Jeong noted, "It was reasonable for our negotiation team to demand a 12.5% tariff on automobile items (considering the FTA), but it was not reflected in the negotiation proposal at all," adding that "there was no mention of steel, which is subject to tariffs, in this negotiation." He continued, "Since the United States conducted tariff negotiations with other countries before proceeding with Korea, it seems that the broad framework of the negotiation proposals was somewhat predetermined."
On the 22nd and 28th of this month (local time), the United States concluded tariff negotiations with Japan and the European Union (EU), respectively. The reciprocal tariffs applicable to these countries are the same as Korea's at 15%. However, there is a difference in the incentives given to the United States.
Japan promised $550 billion in investments in the United States, a 75% increase in imports of U.S. rice, a purchase of 100 Boeing aircraft, and the acquisition of additional defense equipment worth several billion dollars annually. The EU stated it would invest $600 billion in the United States and purchase $750 billion worth of U.S. energy. The tariff rate on exported automobiles to the U.S. increased from 2.5% to 15% for both Japan and the EU. Despite not entering into an FTA with the U.S., Japan and the EU are subjected to the same automobile tariff rate as Korea, which has an FTA.
Jang Sang-sik, president of the Korea International Trade Association, remarked, "Previously, Korea exported automobiles to the U.S. tariff-free under the FTA, but now we have to pay a 15% tariff." He added, "It used to be advantageous in terms of price compared to Japan and the EU, but now we must compete on the same level. Our automotive industry has become disadvantaged due to this negotiation." Jang noted, "The most disappointing aspect of this negotiation proposal is that the effectiveness of the Korea-U.S. FTA has diminished."
Despite this, Jang stated that the relatively low amount of U.S. goods purchased, like Japan and the EU, is an achievement. He pointed out, "Japan has many U.S. products, such as aircraft, and the EU agreed to purchase $750 billion worth of U.S. energy," adding that "Korea's investment in energy, such as liquefied natural gas (LNG), is $100 billion, which represents a relatively low (economic) burden."
Song Yeong-gwan, a senior researcher at the Korea Development Institute (KDI), remarked, "In the end, this negotiation has lowered the tariff on automobile items by 10 percentage points," adding that "we have swapped the $350 billion investment in the U.S. for the tariff reduction on automobile items." He noted, "With the trend of U.S. protectionism expected to continue for some time, the Korea-U.S. FTA has been our strong shield," suggesting that the negotiation team may have forgotten about the importance of the Korea-U.S. FTA.
Concerns were raised that large-scale investments in the U.S. could stifle domestic investments by our corporations. Huh Jeong, president of the Korean Society of International Trade, noted, "With the creation of the U.S. fund, our corporations may need to invest in the U.S., which could lead to neglecting domestic investments," adding that "from a corporate perspective, it does not matter where they invest, but for the Korean economy, it is essential to leave room for reinvesting profits earned abroad back into the domestic economy."
Although our government assessed that the amount of investments in the U.S. was set at a level equating to the trade surplus, indicating a better outcome compared to Japan, there are also indications that it is significant when viewed in absolute terms. Huh pointed out, "$350 billion is approximately 500 trillion won, which is equivalent to Korea's annual budget."
When compared to Japan's economic scale, it is not a positive outcome. As of the end of last year, Japan's nominal Gross Domestic Product (GDP) was $4.2137 trillion, which is 2.2 times that of Korea. According to this ratio, Korea's investment in the U.S. should have been $235 billion.
There is also a view that we cannot loosen our grip yet. President Lee Jae-myung has agreed to hold a one-on-one meeting with President Trump within two weeks, during which details could be adjusted. Kim Jae-cheon, dean of the Graduate School of International Studies at Sogang University, stated, "There are still defense cost negotiations remaining," suggesting that "if there are favorable negotiations on the security front, it could lead to a positive cycle that impacts economic negotiations."