South Korea, US agree to 15% tariff rate; shipbuilding central to deal

South Korea and the United States have reached a trade agreement setting the new US tariff rate at 15%, down from the previously announced 25%, with revitalizing the US shipbuilding sector at the center of the agenda.

Under the trade deal, South Korea is committed to investing $350 billion in the US, including creating a $150 billion shipbuilding fund.

The remaining $200 billion will be directed toward the semiconductor, nuclear energy, secondary battery and biotech sectors.

Bringing relief to Seoul under mounting pressure to finalize a deal ahead of the US-imposed Aug. 1 deadline, the trade deal package excludes any further opening of South Korea’s rice and livestock markets. The exclusion mitigates domestic backlash, particularly from farmers and civic groups wary of US imports.

Koo Yoon-cheol, South Korean deputy prime minister and chief negotiator in the trade talks, said the country's commitment to revitalizing the US shipbuilding industry was crucial in securing the tariff reduction that aligns with the rates to be applied to Japan and the European Union.

“(Our commitment to) the MASGA project made the greatest contribution to reaching the trade deal,” Koo said at a press briefing held in the South Korean embassy in Washington, D.C. on Wednesday.

MASGA is short for Make American Shipbuilding Great Again.

South Korea's initiatives for the MASGA project include building shipyards in the US, training shipbuilding employees, strengthening the US supply chains in the shipbuilding industry and expanding maintenance and repair operations.

"President Trump expressed high regard for South Korea’s shipbuilding capabilities and asked us to begin vessel construction in the US as soon as possible, said Koo, who also serves as South Korean finance minister.

Asia's No. 4 economy is home to the world's leading shipbuilders, including HD Hyundai Heavy Industries Co., Hanwha Ocean Co. and Samsung Heavy Industries Co. 

In 2024, chemicals-to-defense-focused Hanwha Group, the operator of Hanwha Ocean Co., acquired Philly Shipyard for $100 million to make inroads into the US.

“Combining the world-class ship design and construction capabilities of South Korean shipbuilders with the software expertise of US companies is expected to generate synergies in next-generation vessels, including autonomous ships,” said Kim Yong-beom, South Korea’s presidential chief of staff for policy.

END TO FREE TRADE AGREEMENT

While the new 15% tariffs mark the end to the South Korea-US free trade agreement signed in 2007, he said the tariff deal will eliminate much of the uncertainty surrounding Soth Korea's export conditions.

"The deal is that South Korea will give the US $350 billion for investments owned and controlled by the US, and selected by myself, as president,” US President Donald Trump said on his Truth Social platform on Wednesday.

“Additionally, South Korea will purchase $100 billion worth of LNG or other energy products (from the US) and further, South Korea has agreed to invest a large sum of money for their investment purposes,” Trump added.

Details of the deal will be announced within the next two weeks in a bilateral meeting at the White House in Washington, Trump said.

South Korea's presidential office said the timing of their summit has not yet been determined. The two leaders have yet to hold a bilateral meeting.

MAINTAINS 50% TARIFFS ON STEEL

Washington has also agreed to reduce tariffs on South Korea-made automobiles to 15% from 25%, Kim Yong-beom, the presidential policy chief, said at a press briefing held in Seoul on Wednesday.

However, Washington did not roll back its 50% tariff on steel imports imposed in April. South Korean Industry Minister Kim Jung-kwan said Washington remained steadfast in maintaining the steel import tariff rate.

South Korean negotiators acknowledged that the limited timeframe posed challenges during the trade talks.

But they said the government approached the negotiations with the principle of securing a mutually beneficial outcome while ensuring any concessions remain within its tolerable range.

“Regarding forthcoming (US) tariffs on semiconductors and pharmaceuticals, we will be treated on equal footing with other countries,” Kim told reporters.

To underscore South Korea's commitment to investing in the US, heads of the country's top conglomerates, including Samsung Electronics Co., Hyundai Motor Group and Hanwha Group, flew to Washington, D.C. this week and joined government negotiators in the talks.

The three business groups have already announced heavy investment plans in the US across semiconductor, automobile, steel and shipbuilding sectors. It was not disclosed how much additional investment they may have offered during the latest negotiation.

Regarding South Korea's agreement to invest $350 billion in the US, Deputy Prime Minister Kim said that the US government has committed to acquiring assets related to their investment if they fail to attract new buyers, to minimize investment risks.

"The funds will be directed toward projects that are commercially viable and reasonably sound,” Kim noted.

Write to Sangeun Lucia Lee and Shin-Young Park at selee@hankyung.com

Yeonhee Kim edited this article.