Clear agenda needed for mutually beneficial Korea-US tariff negotiations

U.S. President Donald Trump’s unpredictable tariff negotiation principles and direction are destabilizing both the Korean economy and the global economy. Trump started a tariff war with the claimed objective of reducing the U.S. trade deficit and fiscal deficit and reviving U.S. manufacturing. After announcing the so-called "Liberation Day" on April 2, Trump has not seen much progress in tariff negotiations, leaving him with no tangible achievements to present to his people. By now, he must be a man in a hurry to showcase any hint of success to his constituencies.

A clear agenda is a sure way to succeed in any negotiation. Trump has dumped too many items into one basket, from the base tariff, reciprocal tariff and the sectoral tariff on different items for different countries to tariffication of nontariff issues such as defense budget and political disaffection. A defense budget increase to 5 percent is pressed against the EU, Korea, Japan and other trade partners. The 50 percent reciprocal tariff imposed on Brazil on July 9 is claimed be due to an alleged political witch hunt against former President Jair Bolsonaro.

If the negotiation has no clear agenda, it will be difficult for either side to achieve results. It is appropriate to limit the agenda to tariffs, trade and economic issues and resolve the issues gradually to achieve results. How can the tariff issue and the defense budget issue, which are difficult issues even on their own, be put on the same plate and resolved? In this sense, it is a well-thought-out decision not to link the tariff negotiations with the transfer of wartime operation control, which was proposed by some people with little understanding of the basics of negotiation.

What businesses and the economy hate most is uncertainty. Businesses are concerned because the United States is Korea’s second-largest trading partner, accounting for 15.2 percent of Korea’s trade. Businesses predict that if the U.S. tariff policy is maintained as proposed, exports will decrease by 4.9 percent in 2025. This is because 18.7 percent of Korea’s exports go to the U.S., and 11.4 percent of its imports come from the U.S. Since 2020, Korea has been the largest investor in the U.S., investing an average of $26.9 billion annually. This is in line with Korean companies’ strategies to strengthen the resilience of global supply chains such as semiconductors, batteries and cars.

It is best for Korea and the U.S. to reach a mutually beneficial agreement on tariffs as quickly as possible. If an agreement is reached by Aug. 1, the renewed deadline for tariff negotiations, it would be the icing on the cake. If that is not possible, it would be a good strategy to reach an interim agreement and then continue negotiations to resolve differences and clarify the terms and conditions of further negotiations.

Korea’s top priority is to secure favorable tariff rates and minimize proposed tariffs on cars and parts (25 percent), steel (50 percent) and aluminum (50 percent). Korea should insist on no tariff on steel though this will be an uphill battle. On the other hand, Korea can increase its imports of natural gas from the U.S.

Korea and the United States have complementary strengths for revitalizing U.S. manufacturing. The U.S. is a technological leader but not always a leader in manufacturing. On the other hand, Korea is a manufacturing powerhouse with cutting-edge technology. Shipbuilding and semiconductors are good examples of a Korea-U.S. partnership that benefits the economic and strategic sectors at the same time, resulting in economic security.

The scope of cooperation in the shipbuilding industry is diverse, from maintenance, repair and overhaul to construction of icebreakers and tankers. In the artificial intelligence semiconductor sector, only Korea and China have “full-stack” development capabilities from software to hardware. The United States, which lacks hardware and manufacturing capabilities, keenly needs cooperation with Korea.

The Korean government is trying to approach nontariff barriers, such as the online platform regulations (originally scheduled to be introduced in 2026) that the United States has repeatedly raised as an issue, as flexibly as possible. A relevant public organization was already commissioned in May to study export restrictions on high-resolution map data for more flexible and mutually beneficial solutions.

An issue that has resurfaced this time is the import of rice and 30-month-old beef. Although it is minor in monetary terms, it is a political and emotional issue for both countries. It is highly likely to become a spark of anti-American sentiment in Korea, if pushed too hard. Both sides must find a middle ground not to instigate any unintended animosity.

Korea must end its trade overdependence on the United States and China with steady diversification. It is also necessary to quickly join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which involves 12 countries. Joining the CPTPP, which aims for a high level of openness among member countries, is expected to reduce trade dependence on specific countries and help stabilize supply chains.

Song Kyung-jin is senior fellow at Asiatic Research Institute, Korea University.