South Korea and the United States reached a dramatic tariff agreement on July 31, narrowly avoiding the imposition of a 25% mutual tariff that had loomed over bilateral trade. (Image courtesy of Yonhap)
SEJONG, July 31 1 (Korea Bizwire) — South Korea and the United States reached a dramatic tariff agreement on July 31, narrowly avoiding the imposition of a 25% mutual tariff that had loomed over bilateral trade. Under the deal, South Korea will invest $350 billion in the U.S., including a $150 billion shipbuilding fund, in exchange for reducing the planned reciprocal tariff to 15%.
While the agreement eases immediate market fears and preserves Korean access to key U.S. markets, it marks the effective end of tariff-free trade under the existing Korea-U.S. Free Trade Agreement (KORUS FTA). Analysts warn that even the reduced 15% tariff poses a significant burden, especially for export-dependent sectors such as automobiles and steel.
South Korea’s Ministry of Trade said it also secured a pledge from the U.S. for “no less favorable treatment” than other countries in future tariff actions, including pending duties on semiconductors and pharmaceuticals.
With the U.S. having previously demanded greater access to South Korea’s rice and beef markets, Seoul’s ability to maintain protections for these politically sensitive sectors was seen as a negotiating win. The last-minute breakthrough also comes amid signs of economic recovery, buoying optimism that reduced trade uncertainty could support growth.
On July 31, the day South Korea and the United States reached a trade agreement, a ship under construction is seen at HD Hyundai Heavy Industries in Dong-gu, Ulsan. Under the deal, South Korea agreed to lower reciprocal tariffs from 25% to 15% in exchange for investing $350 billion (approximately 487 trillion won) in the U.S. The local shipbuilding industry has expressed optimism, as $150 billion of that investment is earmarked for shipbuilding cooperation. (Yonhap)
Still, observers noted that the 15% tariff—up from previously zero under the FTA—represents a competitive setback, particularly for Korean automakers. Their vehicles will now face the same import duties as Japanese models, eroding pricing advantages. Steel continues to be subject to 50% tariffs, and new duties on chips and pharmaceuticals remain a possibility.
Critics likened the deal to a modern-day “Plaza Accord,” citing the Trump administration’s tactic of using tariffs to extract large investment pledges from allies. The 1985 Plaza Accord was a controversial U.S.-led pact that depreciated the dollar and weakened export competitiveness for Japan and other signatories.
Experts urged South Korea to remain vigilant, especially as potential U.S.-China trade negotiations could further reshape the global economic landscape.
“China might be the most consequential player,” said Chung Kyu-cheol, director at the Korea Development Institute. “Their domestic demand and export flows to the U.S. could have significant spillover effects on Korea.”
M. H. Lee (mhlee@koreabizwire.com)
