Korea and the United States said on the 14th that their trade ministers signed a memorandum of understanding (MOU) on $350 billion (about 509 trillion won) in strategic investment. It comes three months after the two sides reached a broad agreement in their tariff talks on July 30. Earlier in the morning, the two countries finalized a "joint fact sheet (joint explanatory document)" as the final product of the tariff talks and security consultations.
The Ministry of Trade, Industry and Energy said that Minister Kim Jung-kwan and U.S. Commerce Secretary Howard Lutnick signed the "MOU on Korea-U.S. strategic investment." The MOU includes Korea's implementation plan for a $350 billion investment in the United States, the item-by-item tariff rates agreed by the two countries, and agreements in non-tariff areas.
Earlier, Korea decided to invest a total of $350 billion in the United States. Of that, $200 billion will be invested in cash directly in sectors such as shipbuilding, energy, semiconductors, pharmaceuticals, minerals, and artificial intelligence (AI) and quantum computing. The remaining $150 billion will be put into a shipbuilding cooperation area known as the "MASGA (Make American Shipbuilding Great Again) project" through methods such as foreign direct investment (FDI) by corporations and policy guarantees by the government.
◇ Korea and the United States to select investment projects by early 2029, when Trump's term ends
The two countries agreed to select projects eligible for the $200 billion in direct investment by January 2029, within President Donald Trump's term. The investment projects will be recommended to President Trump by a consultative committee chaired by Ministry of Trade and Industry (MOTI) Minister Kim Jung-kwan, in consultation with an investment committee overseen by U.S. Commerce Secretary Lutnick.
The MOU states that recommended projects "must be commercially reasonable." The Ministry of Trade and Industry (MOTI) said this means "investments in which sufficient recoupment of funds is ensured."
Korea decided to disburse no more than $20 billion per year to the United States. The aim is to prevent a sharp outflow of U.S. dollars from Korea's foreign exchange market that would cause the won to plunge. The two countries included in the MOU that "if instability in the foreign exchange market is a concern, (Korea can) request adjustments to the timing or size of payments (to the United States)."
Korea must send project funds to the United States 45 days after the investment destination is determined. If Korea fails to send the money on time despite a U.S. request, the United States will instead receive the interest due to Korea, and tariffs on the United States could be raised.
◇ Create special-purpose entities for each project, managed by a holding company
The United States decided to create special purpose vehicles (SPVs) to reduce risks arising during project implementation. A project SPV will be created for each project, to be overseen by an investment SPV. An official at the Ministry of Trade and Industry (MOTI) said this "allows revenue from other projects to offset losses in a specific project."
Until principal and interest are repaid, Korea and the United States will split investment revenue 50-50, and after repayment they will split it 10-90. Korea has the right to request an adjustment to the revenue-sharing ratio if there are concerns that full principal and interest will not be repaid within 20 years. The repayment interest rate is 0.3 percentage points (P) higher than what Japan agreed with the United States.
In addition, the Korean government will inject $150 billion into the U.S. shipbuilding industry through methods such as private investment, government guarantees, and ship financing. The Ministry of Trade and Industry (MOTI) said it is "a structure in which all revenue generated accrues to our corporations."
◇ Tariff rate on Korean-made cars at 15%, likely applied retroactively from the 1st of this month
Korea and the United States agreed to lower the U.S. tariff rate on Korean-made automobiles and parts from 25% to 15%. The effective date is the 1st of the month in which the government submits a special bill to the National Assembly to establish a special fund to implement the MOU. The government is expected to submit the special bill to the National Assembly this month.
The two countries agreed to cut tariffs on wood products to 15%, and to exempt reciprocal tariffs on certain aircraft and parts and tariffs on steel, aluminum, and copper, effective from the day. They also agreed to abolish 15% reciprocal tariffs on generic pharmaceuticals and natural resources not produced in the United States. This will take effect from the time the implementation plan related to non-tariff measures agreed by the two countries is finalized.