Korea-US tariff agreement clears up uncertainties for carmakers

Korean President Lee Jae Myung and U.S. President Donald Trump pose before their gala dinner in Gyeongju, North Gyeongsang Province, Wednesday. Yonhap

GYEONGJU, North Gyeongsang Province — Korea and the United States have finally reached an agreement on the details of a tariff agreement, clearing a major uncertainty for Korea’s automotive industry by reducing a U.S. tariff on vehicles from 25 percent to 15 percent.

After weeks of stalemate, the two countries completed the negotiations Wednesday, during a bilateral meeting between Korean President Lee Jae Myung and U.S. President Donald Trump.

The latest agreement included a lowered tariff rate on cars and car parts, $150 billion investment in a shipbuilding cooperation project and most-favored-nation (MFN) treatment for pharmaceuticals and wood products.

It also guarantees zero tariffs on aircraft components, generic pharmaceuticals and natural resources produced outside the U.S., as well as a semiconductor tariff rate no greater than the one facing Taiwan, Korea’s main competitor.

“'Reciprocal tariffs’ between the two countries will remain at the reduced rate of 15 percent, as agreed on July 30, and the same rate will apply to cars and car parts,” Kim Yong-beom, presidential chief of staff for policy, said during a briefing following the two leaders’ summit.

“For semiconductors, the tariff rate will be set at a level comparable to that applied to Taiwan, ensuring Korea is not at a disadvantage against its main competitor.”

Given that cars remain Seoul’s largest export to the U.S, the revised rate offers a major relief to the industry, expecting to restabilize export volumes and encourage additional investment from Korean automotive firms in the U.S. market.

“We appreciate the government’s dedicated efforts throughout the difficult negotiation process leading to the agreement,” Hyundai Motor Group said in a press release. “We will continue to pursue various measures to minimize the impact of tariffs while further strengthening our fundamentals through quality and brand competitiveness, as well as technological innovation.”

The agreement also settled specifics of the $350 billion investment fund Korea promised to the U.S. in the initial July 30 deal. Korea will allocate $200 billion for financial investments, which will be executed gradually at $20 billion annually, minimizing volatility in foreign exchange markets.

The remaining $150 billion will be dedicated to shipbuilding collaboration, the so-called “Make American Shipbuilding Great Again” project, which will be led by Korean companies. This initiative is expected to support the modernization of U.S. shipyards and expand joint financing for new vessel construction.

“(The initiative) is also expected to increase the likelihood of Korean companies securing shipbuilding contracts,” Kim said.

“Korean shipbuilding technology is expected to make significant contributions to the modernization and capacity enhancement of the U.S. shipbuilding industry.”

At the summit, both leaders also agreed to work toward delivering tangible results soon, deciding to establish a shipbuilding cooperation consultative body between the countries’ national security and diplomatic authorities.

The execution of the investment will run through January 2029, with the actual funding expected to be placed over a longer period.

Regarding agriculture, Seoul has reaffirmed that it has prevented any additional market opening in the sector, including on highly sensitive products such as rice and beef.

“The two countries agreed mainly to strengthen communication and cooperation regarding quarantine procedures rather than further liberalizing agricultural trade,” Kim said.

Jang Sang-sik, head of trade trend analysis at the Korea International Trade Association, said, "Although the new deal does not offer zero tariffs like the FTA did, it is still fortunate that Korean cars can enter the U.S. market at relatively more competitive prices compared to those from other countries, alongside Japan and the European Union."

Jang added that Wednesday’s deal holds significance in two key aspects: establishing a safety net for Korea’s foreign exchange market and ensuring a certain level of profitability to hedge against potential losses.

“The deal Korea signed today was structured in a way that minimizes potential losses for Korea, even if there are investment setbacks,” he said. “It’s also meaningful that a Korean project manager will take part in overseeing the investment, as it allows Korea’s opinion to be reflected to some extent in project selection and execution. At least based on the agreement text, this seems somewhat more favorable than the tariff deal Japan reached with the U.S.”