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OPINION:
It is the sunniest of times for South Korea’s export-dependent economy and the cloudiest.
With the United States and China as its two biggest overseas markets, South Korea has long punched far above its weight in the global trade rankings. With relatively low formal tariffs on imported goods and a high-tech economy deeply tied into global markets, South Korea ranked as the world’s eighth largest exporting economy in 2023, with roughly 40% of its GDP tied to sales to overseas customers and governments.
Despite a highly uncertain domestic political environment and the ever-present threat from a nuclear-armed North Korea on its divided peninsula, South Korea has managed to create world-class domestic industries selling semiconductors and automobiles, petrochemical products and consumer electronics, and even cultural properties such as K-pop and prize-winning films and television series.
But because the South Korea economy has been so dependent on trade and an open global marketplace, the new Trump administration’s push to re-balance America’s trading position and attack what President Donald Trump calls economy-sapping trade deficits has hit Seoul particularly hard.
In the frantic run-up to the Aug. 1 deadline set by Mr. Trump to impose punitive tariffs on South Korean cars, consumer goods and other items, Seoul’s hottest export commodity this summer may have been the stream of top trade, industrial and security government officials who descended on Washington, desperate to cut an agreement before Mr. Trump followed through on a threat to impose devastating 25% across-the-board tariffs on all South Korean imports.
In the end, Seoul’s worst nightmares did not come to pass, as the two sides announced a deal to set the U.S. tariffs to 15% comparable to what rivals in Japan and the European Union now face, while South Korea also pledged massive investments of $350 billion in American shipping and another $100 billion to purchase American liquefied natural gas (LNG).
So far only the vaguest outlines of the accord have been made public, including how the future investments will be targeted. Tariff rates on key South Korean exports such as pharmaceuticals and semiconductors also are unclear.
“Each side can claim some victories from this agreement,” the Washington-based Center for Strategic and International Studies (CSIS) said in an analysis of the pact. ” … But there are still many items to be ironed out.”
Even before the deal was announced, it was clear that stakes for South Korea’s hugely successful export sectors were “enormous,” according to Wendy Cutler, a longtime U.S. trade negotiator and now vice president at the Asia Society Policy Institute.
South Korea is an “export powerhouse that relies of access to U.S. markets for many of its key products, and it’s also an important export destination for U.S. companies and farmers,” Ms. Cutler told a recent online discussion forum organized by CSIS in the weeks of frantic talks before a final deal was nailed down.
Poor timing
The timing of a trade showdown with Washington could not be worse for Seoul, some trade experts say.
The new government of President Lee Jae Myung is just settling in after the country was engulfed in a constitutional crisis that led to the ouster of his predecessor, Yoon Suk Yeol.
Two-way trade between the U.S. and South Korea has been growing robustly in recent years, reaching nearly $200 billion in 2024. Unfortunately for South Korea today, its trade surplus with the U.S. has also reached record highs $65.5 billion last year and attracted Mr. Trump’s particular anger.
And ironically, a much-touted bilateral free-trade accord negotiated under the George W. Bush administration and expanded in Mr. Trump’s first term means formal South Korean tariffs on U.S. good and services are already low or nonexistent giving Seoul no bargaining leverage against U.S. market-opening demands.
Unlike their EU counterparts, South Korea also decided not to counter Mr. Trump’s tariff threats with new trade barriers against U.S importers, apparently trying not to provoke Washington any more than necessary.
South Korean officials were also trying to cut a deal with Mr. Trump’s aides alongside dozens of other nations facing the same Aug. 1 deadline, meaning that even scheduling a meeting with key U.S. officials says as U.S. Trade Representative Jamieson Greer or Commerce Secretary Howard Lutnick proved at times to be a logistical challenge.
Only adding to the uncertainty and anxiety in Seoul was the postponement in late July of the so-called “2+2” trade talks involving top ministers such as U.S. Treasury Secretary Scott Bessent and South Korean Deputy Prime Minister and Finance Minister Koo Yoon-cheol. At one point, Mr. Koo was reportedly already at Incheon International Airport preparing to board a flight to Washington when he learned the already-delayed talks were being put off once again.
The at-times chaotic nature of the trade talks has led some analysts to warn that the full impact of the agreement won’t be felt or known for years to come. Whether it will have an impact on the significant South Korea bilateral trade surplus with the U.S. looms as another large unknown.
Philip A. Luck, director of the Economic Program at CSIS, noted that the multi-faceted, multi-sector deal South Korea was negotiating with the Trump administration would likely include sensitive concessions in such areas as digital policy, agriculture, non-tariff barriers and even the nature and scope of the U.S.-South Korean military alliance.
“The idea that they can do all this over a few weeks is kind of comical,” Mr. Luck told the CSIS forum.
Adding to the Lee’s government’s burden in the final days of the trade talks, Japan, its closest Asian competitor, weeks earlier had struck at least a framework of its own deal with the U.S., with Trump administration officials outlining a deal to cut Tokyo’s tariffs to 15% and clear the way for hundreds of billions of dollars of Japanese investment in the U.S. economy.
The Japan announcement “really forced” the issue for Seoul, Ms. Cutler argued. South Korean negotiators could not go home with a worse deal than Japan, she said.
With few tariffs to cut, South Korean officials explored other ways to satisfy the new U.S. administration’s demands for a more balanced economic relationship. Korean companies, they say, can offer struggling American counterparts aid and investment dollars in such critical industries as shipbuilding and semiconductors.
South Korean corporate giant Hyundai recently signed a deal with an American company to help build ships in Tampa, Fla., and Seoul officials say more such collaborative ventures are possible.
Bloomberg recently reported that President Lee held a string of private meetings in recent weeks with top South Korean conglomerates, including Samsung, SK, Hyundai Motor, LG and Hanwha, seeking pledges of larger investments in the U.S. market.
Broadening the scope
South Korean officials say privately they resorted to a classic tactic at the bargaining table: trying to solve the problem by making it bigger.
If Mr. Trump’s longstanding unhappiness over the cost of U.S. military deployments on the Korean peninsula are wrapped into the talks, a deal just on the trade issues could be easier to reach.
“Tariffs and non-tariff barriers are the core of the negotiations,” a senior government official told the Chosun Ilbo newspaper as the final round of talks with heating up in July. “But we’ve also put security proposals on the table, including a defense spending increase tied to GDP, to find a broader ’landing zone’ for agreement.”
Despite the large hurdles and lack of public progress at times, South Korean officials and many private analysts sounded increasingly optimistic in the final days that Washington and Seoul would cut a deal, if only because the alternative would have caused potentially catastrophic repercussions for the South Korean economy.
And with Mr. Trump buoyed by a string of strong recent reports on U.S. employment, growth and inflation, “the clock is not working in Korea’s favor right now,” said Ms. Cutler.
But the veteran trade negotiator added the hazy “framework deals” that Washington is touting “will leave a lot of the details for future negotiations.”
South Korean officials are also signaling that the July 31 announcement may be closer to the beginning of the process than to the end, despite the ominous warnings for South Korea exporters.
South Korean Minister for Trade Yeo Han-koo, one of several Seoul emissaries who held high-level talks with U.S. officials in Washington in the run-up to the pact, told reporters, “I believe it’s possible to reach an agreement in principle in the U.S. tariff negotiations, and then take some time to negotiate further.”
“Twenty days are not enough to come up with a perfect treaty that contains every detail,” he added.
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