The New Normal of Trade Order:
The Korea–U.S. Tariff Agreement
Is Only the Beginning

The Shadow Behind the Agreement

Moments before the August 1 deadline set by U.S. President Donald Trump, Korea reached a dramatic agreement on tariffs, securing 15% reciprocal tariffs and 15% automobile tariffs. Korea also obtained treatment on semiconductor and pharmaceutical tariffs not unfavorable compared to competitor nations. With Japan and the EU concluding their own tariff negotiations in mid-July, Korea, pressed by the looming deadline, managed to quell the emergency at hand. However, Korea’s zero-tariff status under the Korea–U.S. Free Trade Agreement (FTA), in place since 2012 for thirteen years, is now gone. During negotiations, the Korean government pledged a USD 350 billion investment package directed toward the United States. This includes the “Make American Shipbuilding Great Again” (MASGA) project valued at USD 150 billion to help revive the U.S. shipbuilding industry, along with the purchase of USD 100 billion worth of American energy.
Contrary to expectations that the negotiations were complete, many viewed the negotiations as “not yet over.” Korea and the United States offered differing interpretations of what had been agreed upon, including the nature and operation of the investment package, agricultural market access, and non-tariff barriers in digital trade. The Korea–U.S. summit held in Washington on August 25 presented an opportunity to resolve these differences, yet a joint statement was not issued, and Korea continues to pay a 25% tariff on automobile exports, instead of the 15% that was purportedly agreed upon.
The tariff barrage initiated by President Trump, coupled with the global trend of major countries adopting industrial policies to protect domestic industries, has triggered a wave of protectionism. For Korea an advanced economy heavily reliant on manufacturing and international trade this presents an existential threat. Entering a phase of ultra-rapid aging, Korea’s economic dynamism is already under pressure, creating a dual crisis both internally and externally. Without adaptation, Korea risks becoming known as a country that “was once developed.” The urgent question is where to find opportunity in this crisis.

A New International Trade Landscape

Korea’s dramatic conclusion of tariff negotiations with the United States has made the evolving global trade landscape shaped by Trump’s tariff war more apparent. On April 2, 2025, President Trump declared the imposition of country-specific reciprocal tariffs, launching a 100-day negotiation period. On August 7, the United States finalized and implemented its country-by-country tariff schedule. Three countries, including the United Kingdom, are subject to 10% tariffs. Twenty countries, including Korea, the EU, and Japan, are subject to 15%. Forty-six countries, including China and India, face tariffs exceeding 15%. The United States applied Most Favored Nation (MFN) tariffs1 to WTO members until 2024, before the launch of President Trump’s second term in office, meaning that WTO members were not subject to discrimination based on country of origin. Now, different tariff rates are applied to different countries.
The Trump administration’s tariff offensive unilaterally dismantled the multilateral trade system that has been upheld for nearly 80 years, and has effectively nullified FTAs. In response, major countries have raised their own trade barriers and adopted industrial policies, accelerating the transition of the international trade system into a managed trade regime based on power. Korea’s tariff negotiations with the U.S., backed by a large-scale investment package including MASGA, signals Korea’s joining other major players like Japan and the E.U. in actively participating in the power-based trade order being shaped by President Trump. With naval power poised to be the decisive factor in the final phase of 21st-century hegemonic competition, the United States is under pressure from China’s rapid naval buildup. In this context, Korea’s MASGA proposal is an affirmation that the new administration’s pragmatic, national interest–oriented diplomacy is firmly grounded in the Korea–U.S. alliance. Such shifts demonstrate that tariffs are no longer bound only to economic and trade policy. Rather, tariffs are now central to industrial and technological cooperation as well as foreign and security policy reflecting today’s geopolitical conflict and struggle for economic security. President Trump’s expressed commitment to reviving the U.S. shipbuilding industry during the recent Korea-U.S. summit underscores this point, signifying Korea’s securing an important opportunity to advance its national interests.

• 1.In trade or navigation treaties, the Most-Favored Nation (MFN) clause ensures that the best treatment granted to any country must also be extended to the treaty partner. Historically, this clause served as a method to eliminate trade barriers in bilateral negotiations during the era of high tariffs. In modern times, MFN treatment has become a foundational principle of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), effectively applying the same favorable treatment to most member countries. (Source: Ministry of Economy and Finance, Republic of Korea)

The Tariff War Is Not Over

The impact of Trump’s tariffs continues to reverberate into the future. Despite the tariff agreement at the end of July, new duties were announced on semiconductors, pharmaceuticals, steel, and aluminum derivatives. Tariffs on furniture are also anticipated. Raising the 25% tariffs on steel and aluminum to 50% is proof that Trump’s tariffs can be increased unilaterally, at any time. His underlying message is clear: “If you dislike the tariffs, invest in the United States.” Seemingly in response, South Korean conglomerates pledged USD 150 billion in such investments during the Korea-U.S. summit. While companies dislike the tariffs, they are more wary of the uncertainties regarding tariffs, including tariff levels and when they will be imposed. The premium advantage once provided by the Korea-U.S. FTA, which ensured a competitive price differential over rival nations, has now vanished. South Korean companies must now navigate both Trump’s reciprocal tariffs and additional product-specific tariff barriers, which necessitates fundamental trade and investment strategy reexamination and redesign.
The first and most important question is: “Is the U.S. market indispensable?” The appeal of China South Korea’s largest export destination for many years continues to decline. Meanwhile, the United States now accounts for 19% of South Korea’s exports and has emerged as the world’s largest consumer market. The massive EU market, though attractive, remains fortified behind non-tariff barriers for non-member countries like South Korea. Emerging markets in Southeast Asia and the broader Global South hold potential, but will entail intense competition from China, which is being pushed out of the U.S. market. The evident conclusion is that South Korea cannot afford to exit from the U.S. market in the short run.
The options are to export or to invest exporting requires overcoming high tariff walls, investing involves engaging in fierce competition within the United States. The U.S. manufacturing ecosystem has eroded significantly, but Trump’s tariffs introduce complications. The steep increase of duties from 0% to 15% means that South Korea now finds itself contending not only with traditional competitors like Japan and Germany but also with the United States. Korea needs to employ both short-term and mid-to-long-term strategies. In the short term, companies must find ways to absorb the burden of increased tariffs without passing costs on to consumers. If Trump’s tariff storm is more than just a passing squall then cost reduction through innovation and enhanced brand loyalty may be the only solutions. At the same time, companies must actively identify and develop markets outside the United States. Government and political institutions must provide institutional support to ensure that corporate innovation and market development efforts can succeed.