Trade deal with US set to boost Korea's exports

Vehicles are parked at Pyeongtaek Port in Gyeonggi Province, Nov. 2. Yonhap

Korea’s exports are expected to see a major boost following the landmark trade deal with the United States, as documents released with the agreement offer a clearer outlook for U.S.-bound shipments in key industries, including automobiles and semiconductors.

On Friday, Seoul and Washington released the fact sheet summarizing the results of the Oct. 29 summit between Korean President Lee Jae Myung and U.S. President Donald Trump. The two countries also signed a new memorandum of understanding, sealing the details of their tariff negotiations since July.

Under the new agreement, the U.S. has agreed to lower its tariffs on Korean automobiles and automotive parts from 25 percent to 15 percent, applied retroactively from Nov. 1.

The new tariff rate effectively puts Korean exporters on an equal footing with their counterparts from Japan and the European Union in one of its key industries.

The timing is critical, as the country’s automotive industry has been grappling with months of uncertainty over higher tariff rates. Since the previous 25 percent tariff was imposed in April, Korea’s automobile exports to the U.S. fell 7.5 percent in September from a year earlier.

The tariff imposed on Korea’s two major carmakers drove third-quarter costs sharply higher, totaling around 1.8 trillion won ($1.25 billion) for Hyundai Motor and more than 1.2 trillion won for Kia. This hit the two companies’ third-quarter operating profits, which fell nearly 30 percent and 50 percent year-on-year, respectively.

The new tariff rate allows Korean automakers to compete again with their Japanese and European rivals on a level playing field.

Before the second Trump administration, Korean carmakers enjoyed duty free access to the U.S. market under the Korea-U.S. Free Trade Agreement, giving them a 2.5 percentage point advantage over Japanese-made vehicles.

After the tariff saga, that advantage is now gone, but major Korean carmakers have been steadily expanding their U.S. production bases through continued investment, which is expected to support exports in the years ahead.

The reassurances that Korean semiconductors will be treated “no less favorably” than their competitors also raise expectations for exports in the future.

With global demand for memory, storage and other chips peaking on the back of the artificial intelligence boom, Korean chipmakers have been breaking export records, posting year-on-year growth for eight straight months since March.

SK hynix's HBM4 is displayed at the Semiconductor Exhibition in Seoul, Oct. 22. Yonhap

The semiconductor exports from January to October this year have topped $140 billion, far exceeding the $129.2 billion record of 2022. In September alone, the industry saw $16.61 billion in exports, growing 22 percent from a year earlier and marking an all-time monthly record.

One of the main uncertainties hanging over this so-called supercycle had been the possibility of a U.S. tariff on chips, with Trump warning earlier this year that the rate could go as high as 100 percent. While Washington has yet to announce a specific figure, analysts say Korea is unlikely to be at a disadvantage as long as the tariff is set at a level comparable to that applied to its biggest competitor, Taiwan.

The latest tariff agreement is expected to add momentum to Korea’s recent export gains. According to the Bank of Korea, the country posted a $13.47 billion current account surplus in September, the second largest ever and the highest figure recorded for any September.

From January to September, the cumulative surplus reached $82.77 billion, setting a new all-time high figure.

“The semiconductor boom has been the biggest driver behind the current account surplus. Strong automobile exports to diverse markets, robust shipping sales and better primary income from overseas dividends have also played major roles,” an official from the Bank of Korea explained.