US and South Korea reach trade deal, reducing tariffs from 25% to 15%

President Donald Trump announced on Wednesday that the US would reduce the tariff it applies to imports from South Korea from 25% to 15%. This decision was made as part of an agreement aimed at reducing tensions with a top 10 US trading partner and key Asian ally.

The deal, announced after Trump met with Korean officials at the White House, came amid a flurry of trade policy announcements ahead of a self-imposed August 1 deadline.

Trump had promised to impose higher tariffs on imports into the US from a range of countries starting from that date. Imports from South Korea, a major exporter of computer chips, automobiles, and steel, were subject to a 25% tariff before Wednesday’s last-minute agreement.

“I am pleased to announce that the United States has signed a full and complete trade agreement with the Republic of Korea,” Trump wrote on Truth Social.

The negotiations were an early test for South Korean President Lee Jae-myung, who took office in June following a snap election. Lee said the agreement removed uncertainty from the export environment and brought US tariffs down to or below the level of its main competitors.

“We have overcome a major hurdle,” Lee said in a Facebook post. Trump said Lee would visit the White House “within the next two weeks” for his first meeting with the US president.

South Korea agreed to invest $350 billion in projects of Trump’s choosing and to purchase $100 billion worth of energy products.

He also stated that South Korea would accept American products, including automobiles and agricultural goods, into its markets and would not impose import taxes on them.

Top South Korean officials said the country’s rice and beef markets would not be further opened and that talks were ongoing regarding US demands related to food regulations.

“We avoided the worst and chose the best,” said former South Korean Trade Minister Cheong In-kyo. Much will depend on how the investments in the US are structured, he added.

“Depending on how and where the $350 billion is spent, this fund will be evaluated differently,” he said.

Where will the funds go?

It was not immediately clear how the investment deals would be structured, where the financing would come from, over what time frame they would be implemented, and to what extent their terms would be binding. Trump said South Korea’s additional investments would be announced later.

Kim Yong-beom, the policy chief at the South Korean presidential office, said at a briefing that $150 billion of the $350 billion fund would be allocated to a shipbuilding partnership, with the remaining $200 billion going to chips, nuclear energy, batteries, and biotechnology.

According to Kim, the existing investment plans of South Korean companies will also be part of the fund.

Kim said that “uncertainty is good,” but added that measures were being taken regarding how the funds would be used.

US Commerce Secretary Howard Lutnick announced in a post on X that 90% of the profits from the $350 billion fund would “go to the American people.”

Kim said South Korea understood this to mean the profits would be reinvested.

The energy purchases will include LNG, LPG, crude oil, and a small amount of coal, Kim noted.

“This is within our normal import volume,” Kim said, adding that it could lead to a “slight shift” in the country’s imports from the Middle East to more American sources.

Lutnick said the energy purchases would take place “over the next 3.5 years.”

Lutnick noted that the US tariff rate on South Korean automobiles would be set at 15% and that the country’s semiconductor and pharmaceutical exports would not be subject to harsher treatment than other countries. Steel, aluminum, and copper were not covered by the new agreement.

Turmoil in South Korea

The negotiations took place amid a turbulent political environment in South Korea, following the impeachment of former President Yoon Suk Yeol over his attempt to declare martial law.

South Korea has been a particular target for Trump due to its trade surplus, as well as the costs of the approximately 28,500 US troops stationed in the country for defense against North Korea.

Last year, South Korea recorded a record trade surplus of $55.7 billion with the US, an increase of 25.4% from the previous year.

Although South Korea is one of only three Asia-Pacific countries with a comprehensive free trade agreement with the US, it was not exempted from the new tariffs.

Pressure on South Korea had increased after Japan signed a deal earlier this month to lower Trump’s threatened tariffs to 15%.

As government officials made last-ditch efforts to reach a tariff agreement, South Korea’s Samsung Electronics signed a $16.5 billion chip deal with Tesla.

South Korean battery manufacturer LG Energy Solution also signed a $4.3 billion deal to supply energy storage system batteries to Tesla.