Korea-U.S. trade agreement finalized: South Korea invests $350 billion in the U.S. in exchange for tariff reductions and concessions on nuclear technology

South Korea and the United States signed a memorandum of understanding, with Seoul committing to an investment of $350 billion in exchange for tariff concessions and core defense technology concessions. This agreement provides greater certainty for South Korean automakers and chip manufacturers' export plans.

According to Xinhua News Agency, South Korean President Lee Jae-myung held a press conference at the Blue House in Seoul on the 14th, announcing that South Korea and the U.S. had finalized the "Joint Fact Sheet" on tariff and national security consultation results.

According to the published document, the leaders of South Korea and the U.S. expressed agreement on the "Korea Strategic Trade and Investment Agreement" released in July this year, confirming that the agreement includes South Korea's $150 billion investment in the U.S. shipbuilding sector, as well as an additional $200 billion investment commitment under the "Strategic Investment Memorandum of Understanding."

The agreement shows that the U.S. will impose a maximum tariff of 15% on South Korean goods, with auto tariffs reduced from the current 25%, but still significantly higher than the 2.5% under the previous free trade agreement. South Korea is required to procure $25 billion worth of U.S. military equipment by 2030 and contribute $33 billion in support funds for U.S. troops stationed in South Korea. This agreement also includes key defense concessions that South Korea has long sought, such as the advancement of nuclear submarine construction and the expansion of rights for uranium enrichment and nuclear fuel reprocessing.

$350 Billion Investment Framework: Shipbuilding and Semiconductors as Key Areas

The $350 billion investment facility will guide South Korean capital into strategic industries such as U.S. shipbuilding, energy, semiconductors, pharmaceuticals, critical minerals, artificial intelligence, and quantum computing.

According to media reports, Lee Jae-myung emphasized that investments will be limited to commercially viable projects, clearly addressing public concerns that the plan may constitute aid or result in unrecoverable losses.

According to the joint document, the U.S. agrees to limit South Korea's annual outflow of dollars to $20 billion and provide flexibility for time adjustments when necessary to prevent instability in the currency market.

The South Korean government plans to establish a special fund through special legislation, relying on existing foreign exchange asset returns or issuing foreign currency bonds for financing, rather than directly purchasing dollars domestically.

Project selection will continue until the end of Trump's term in January 2029, and South Korea must provide funding within no less than 45 working days after receiving formal investment target notifications from the U.S.

Reports indicate that a central "investment special purpose vehicle" will manage various projects, pooling risks so that losses from individual projects can be offset by gains from others.

Profits will be distributed on a 50:50 basis until the principal and interest are fully repaid, after which the earnings will be distributed on a 90:10 basis, favoring the U.S. side.

Tariff Reductions: Different Treatments for Automobiles and Chips

The U.S. will impose a maximum tariff of 15% on South Korean imports, including automobiles and pharmaceuticals. Although the auto tariff is reduced from the current 25%, the new rate is still significantly higher than the 2.5% previously enjoyed by South Korea under the free trade agreement.

According to reports from Yonhap News Agency, the fact sheet did not specify when the U.S. would begin to reduce the current 25% tariff on automobiles and auto parts to 15% In the semiconductor sector, the United States has committed to providing South Korea with treatment that is "no less than" that of other major trading partners.

The United States also plans to eliminate additional tariffs imposed on specific products, including generic drugs and their ingredients and precursors, as well as certain natural resources not produced domestically. Tariffs on specific aircraft and components from South Korea will also be eliminated.

The agreement includes an enforcement mechanism, and if South Korea fails to meet capital requirements within the deadline, costs may increase.

South Korean Industry Minister Kim Jung-kwan stated that if Seoul misses the scheduled payments, the United States will temporarily collect interest owed to South Korea until the unpaid amount is compensated, and tariffs may rise above the 15% threshold.

Breakthrough in Core Defense Technology

According to reports, South Korean President Lee Jae-myung confirmed that the two countries agreed to advance the construction of nuclear-powered submarines, which has been a strategic goal for Seoul for decades. South Korea also received U.S. support to expand its rights related to uranium enrichment and spent nuclear fuel reprocessing.

The United States reiterated its commitment to extended deterrence, including nuclear capabilities, and welcomed Seoul's commitment to increase defense spending to 3.5% of GDP. South Korea also pledged to procure $25 billion worth of U.S. military equipment by 2030 and contribute $33 billion for U.S. troops stationed in South Korea.

Lee Jae-myung pointed out that the release of the joint document came more than two weeks after the two countries agreed to finalize the deal, due to intense debates over precise wording considering the seriousness of the issues.

He specifically noted that agreements on nuclear fuel enrichment, reprocessing, and submarines are particularly sensitive.

"This relates to the fate of the nation, and for this reason, we cannot underestimate any word or clause. This is an extremely important negotiation, accompanied by many difficulties and obstacles."