The Peninsula

The Order and Chaos Surrounding U.S.-South Korea Tariff Negotiations

The beginning of President Donald Trump’s second term presages a major reordering of U.S.-South Korea economic relations. The imposition of reciprocal tariffs on Korea and the addition of import duties on steel and automobiles signify a sharp turn away from the playbook previously dictated by the U.S.-Korea Free Trade Agreement (KORUS FTA). At the same time, new commitments to fast-track investment from allies, as well as continued attention to economic security issues such as export controls and supply chains, suggest forward progress in bilateral commerce. As the White House’s policies continue to develop, negotiation outcomes are set to take shape. The following is a review of the major policy developments affecting U.S.-Korea economic relations under the Trump administration as of April 2025.

Trade and Tariffs

The United States’ USD 66 billion trade deficit with Korea is likely to keep the country on the firing line for trade negotiations as the White House seeks drastic reductions to U.S. trade deficits.

On February 10, the president restored a 25 percent tariff on steel and aluminum under Section 232, eliminating the quota system that had allowed Korean steel exports at 70 percent of their average tonnage from 2015 to 2017. Some two months later, on April 3, a 25 percent tariff on autos went into effect—with limited exceptions—while tariffs on auto parts are set for May 3 (Trump has since considered temporary exemptions on these measures). Beyond this, more Section 232 tariffs on semiconductors, pharmaceuticals, and other goods appear to be incoming, while certain electronics and other goods have thus far been exempted from the reciprocal tariffs.

U.S. allies like Canada and Mexico were among the first to be hit with targeted tariffs, with Korea momentarily spared. During Trump’s address to Congress in March, however, he claimed that Korea’s tariffs on the United States were “four times” as high as U.S. tariffs on Korea—an assertion the ROK Ministry of Trade, Industry and Energy (MOTIE) rejected in a press release that also stated Korea’s effective tariff rate on U.S. imports hovers at 0.79 percent. The “four times as high” figure was likely a reference to Korea’s most favored nation (MFN) rates, which do not apply to the bilateral trade relationship under the KORUS FTA.

Along with introducing a 10 percent baseline tariff on imports from all countries, on April 2, the president announced country-specific reciprocal tariffs, levying a 25 percent import duty on Korea in response to what the White House claimed were 50 percent tariffs charged to the United States by the country, “including currency manipulation and other trade barriers.” (Korea was added back to the U.S. Department of the Treasury’s currency monitoring list in November 2024 after having been removed in November 2023.) The president held up the U.S. Trade Representative’s annual National Trade Estimate report, released on March 31, and claimed that it contained the specific details of each country’s trade barriers against the United States. For Korea, this included beef import restrictions, network usage fees, and defense procurement regulations as trade-related issues. Meanwhile, the report acknowledged that Korea had eliminated the majority of tariffs on U.S. imports under the KORUS FTA agreement.

While the news of tariffs drove markets into a tailspin, the White House subsequently offered a ninety-day reprieve for the reciprocal tariffs, except for China. On the day of the reprieve, President Trump and Acting Korean President Han Duck-soo had their first phone call since Trump took office. Afterward, Trump remarked on social media that the United States and Korea have “the confines and probability of a great DEAL for both countries.” Han subsequently clarified in an interview with CNN that Korea would not follow China’s example in retaliating against the tariffs.

While tariffs against Korea may violate economic parameters previously made under the KORUS FTA agreement, the events of the last ninety days suggest that the two countries will reach some sort of agreement on a new trade deal. Along these lines, National Economic Council Director Kevin Hassett indicated that when it comes to arranging requests for tariff negotiations, Trump “prioritizes two of [the United States’] closest allies and trading partners, Japan and Korea.” The United States and Korea are set to begin their first trade negotiations on the tariffs in Washington later this week.

Accordingly, investments for tariff relief will likely be part of the negotiating game. One of Trump’s executive orders, “America First Investment Policy,” aims to create “fast track” investment approvals for allies and partners, and Secretary of Commerce Howard Lutnick has floated a USD one billion investment threshold for companies to receive regulatory incentives for their U.S. investments. The Trump administration has since secured a USD 21 billion pledge by Hyundai. Depending on how this pledge factors into negotiations, further investment announcements may be expected to follow.

Inflation Reduction Act

Trump has also paused unspent Inflation Reduction Act (IRA) project funding through his “Unleashing American Energy” executive order, leaving many battery, solar, and wind projects in limbo. At the same time, cuts to federal agencies through the Department of Government Efficiency (DOGE) imperil the IRA project loan disbursement program (through which funding exists outside of congressional appropriation). Still, where the fight over unspent IRA money remains caught up in court, any type of rescindment is not likely to be smooth sailing. For example, on April 15, a federal judge ruled that the Trump administration must take “necessary steps” to reinstate funding that had already been awarded to government agencies.

A full repeal of the IRA would require congressional abrogation. Disproportionately benefiting Republican states, such a move would be unpopular across constituencies. Accordingly, on March 9, nearly two dozen Republican House members submitted a letter to the Ways and Means Committee opposing efforts to repeal sector-wide energy-related tax credits. In the interim, while some Korean investment projects have cited expected IRA subsidies as an impetus for their decision, continued disbursement of these funds may remain uncertain.

As for the IRA’s tax breaks on electric vehicles, Lutnick called the IRA’s provisions that allow foreign vehicles to receive its USD 7,500 tax credit “the example of the failed industrial policy of the United States of America” and that it “needs to be changed now.”

Chips

As the USD 52 billion piece of legislation aimed at subsidizing U.S. chip manufacturing, the CHIPS and Science Act, enacted by the Joe Biden administration, did not appear to be in Trump’s sights the way the IRA had been throughout the 2024 presidential campaign. Although then candidate Trump touched upon it briefly, there seemed to be no explicit declaration to eliminate it.

The congressional address in March changed that, when the president called the CHIPS Act a “horrible, horrible thing” and urged House Speaker Mike Johnson to repeal it and use it toward reducing U.S. debt or “any other reason you want to.” Trump had previously stated his intention to impose tariffs on the import of semiconductors, along with pharmaceuticals and steel. Subsequently, on April 1, the Department of Commerce initiated a Section 232 national security investigation into the import of semiconductor and chip manufacturing equipment, meaning tariffs on chips are likely coming soon.

At the ground level, U.S. semiconductor companies are already grappling with stalled CHIPS Act allotments, indicating future funding may be unclear or subject to more stringent review. In his January 29 confirmation hearing, Lutnick stated that the CHIPS Act was an “excellent down payment” to begin the process of bringing semiconductor manufacturing to the United States, going on to say, “As a structure, I think we need to get it right. I think we need to review [CHIPS Act investments] and get it right.” These comments may indicate that investments under the CHIPS Act could be subject to greater scrutiny going forward, and with a Section 232 investigation into chip imports now open, this could mean an intention toward additional requisites or more restrictive funding parameters.

With Korea’s semiconductor exports to the United States at USD 8.2 billion in 2024—6.4 percent of its overall exports to the country—tariffs on semiconductors would likely have significant effects on U.S. supply chains for advanced technologies, including AI infrastructure such as data centers. Given the special nature of the U.S.-Korea technological relationship, particularly Korea’s high-bandwidth memory (HBM) chips being used in U.S. graphics processing units (GPUs), it remains to be seen whether there could be any long-term reprieve for tariffs on semiconductor imports from Korea.

Artificial Intelligence

One of the last policy actions of the Biden administration was the so-called “AI Diffusion Rule,” introduced on January 15, which placed restrictions on the export of advanced AI technologies, including on HBM chips and AI training models—save for a select list of countries.

Korea was included in the list of eighteen countries as part of the rule’s first-tier category of “trusted allies,” allowing  access to advanced AI systems and chips and the right to build and expand AI data centers globally. This gave the countries the same access as Five Eyes intelligence partners and NATO allies and guaranteed Korea’s continued access to high-level technology through its status as an Artificial Intelligence Authorization (AIA) country.

Upon entering the White House, however, Trump signed the “Removing Barriers to American Leadership in Artificial Intelligence” executive order, revoking “certain existing AI policies and directives that act as barriers to American AI innovation.” Detractors criticized the Biden administration’s AI diffusion rule for being too exclusionary, and U.S. senators submitted a letter to the Trump administration on April 16 calling for its withdrawal. Among other things, they argued that excessive AI constraints would turn countries outside the UVEU grouping toward China for cheap, unregulated substitutes. Accordingly, the Trump administration is reportedly intent on reviewing Biden-era AI guidance, with the possibility of revising export controls for semiconductors.

The obligation to comply with the AI rule does not begin until May 15. Whether the rule will be revised to include more countries or eliminated altogether remains an important question in the next few weeks. One likely scenario is the elimination of AI diffusion for countries until they adopt their own U.S.-aligned export controls, imposing greater restrictions on Chinese access to any in-country data centers.

As for investments, on his second day in office, Trump announced the creation of the USD 500 billion Stargate Project for AI data centers, which was backed by OpenAI CEO Sam Altman, Oracle Corporation Co-founder Larry Ellison, and SoftBank CEO
Masayoshi Son. Altman and Son subsequently visited Korea, where both Samsung and SK Hynix reportedly received promotional materials about the Stargate Project, hinting toward Korea’s possible involvement. With this in mind, U.S. data center investment has the potential to be another significant negotiating tool in exchange for any form of tariff reprieve.

Export Controls

The “America First Trade Policy” memorandum released by the White House on January 20 instructed the Department of Commerce to review existing U.S. export controls and make modifications “in light of developments involving strategic adversaries,” moreover seeking to eliminate loopholes where they exist.

The same day, Chinese AI company DeepSeek released its R1 large language model (LLM), and U.S. tech stock prices fell precipitously. DeepSeek’s reliance on U.S. company NVIDIA’s GPUs, despite increasing export controls on AI-related processors, prompted concern about the efficacy of the export control regime and signaled the uncertainty of the U.S. leadership in AI. Accordingly, the shock caused by DeepSeek added weight to any discussions about extending the Biden administration’s “Small Yard, High Fence” strategy toward protecting technology exports.

Along these lines, in an interview with the Wall Street Journal in March, former U.S. Assistant Secretary for Export Enforcement Matthew Axelrod stated that the aggressive use of export controls is likely to continue under the second Trump administration, with many controls having been put into place under Trump’s first term. Subsequently, on April 9, the Trump administration hit NVIDIA with an export license requirement to sell its AI-focused H20 processor in China, portending continued enforcement of the “Small Yard, High Fence” economic security strategy.

Where Korean chipmakers specialize in HBM chips used in AI-focused GPUs, compliance with export controls is likely a topline item for the relationship, ushering a need for broader coordination with the Commerce Department’s Bureau of Industry and Security (BIS). With South Korea, Japan, and China pushing toward their own FTA under the auspices of the recently revived trilateral secretariat, alongside other regional trade frameworks such as the Regional Comprehensive Economic Partnership (RCEP), Korea’s cooperation with the United States on export control measures could have the potential to be a major point of contention for free trade with China, as China seeks to secure their own forms of economic reprieve. Nonetheless, U.S.-Korea alignment on export controls, as well as other issues overseen by the Commerce Department, will remain a U.S. priority as it seeks to maintain and advance economic security between the two partners.

Shipbuilding

The Trump administration provided early signals of its emphasis on revitalizing U.S. shipbuilding. In his first phone call with then South Korean President Yoon Suk-yeol after winning the presidential election, Trump reportedly broached South Korea’s involvement in this endeavor. In January, Trump suggested increasing cooperation with partners, stating, “We don’t build ships anymore. We used to build a ship a day. We don’t build ships anymore. We want to get that started. And maybe we’ll use allies, also, in terms of building ships. We might have to.”

As such, the United States and Korea have established an intergovernmental working group to cooperate on shipbuilding, and following Trump’s April 9 executive order titled “Restoring America’s Maritime Dominance,” the president told reporters, “We may buy some ships from other countries that we’re close to and that do great jobs with ships.”

While the United States and Korea are currently cooperating on maintenance, repair, and overhaul (MRO) for naval support vessels and U.S. shipyard revitalization investments, it is likely that Trump’s pronouncements to “use allies” for shipbuilding is an issue that will require congressional support and legislation.

Accordingly, the SHIPS for America Act and The Ensuring Naval Readiness Act from the last congressional session are two  pieces of legislation capable of driving bilateral cooperation. The former aims to support a U.S. Strategic Commercial Fleet, possibly using foreign-built ships as an interim measure, while the latter, focusing on the Navy, contains potential carveouts for allies.

All fit into the United States’ strategic plans to bolster its maritime capabilities, and U.S.-Korea collaboration in this area will likely focus on shipyard investment, increased parameters for defense procurement, MRO agreements, and labor solutions for shipyards.

Energy

One of Trump’s day-one executive orders, “Unleashing American Energy,” reversed Biden-era restrictions on liquified natural gas (LNG) exports and authorized the Secretary of Energy to “restart reviews of applications for approvals of liquified natural gas export projects as expeditiously as possible.”

Korea obtains more than 90 percent of its energy from abroad and is the third-largest importer of LNG in the world. Meanwhile, owing to a surge in demand for alternative import partners from Russia following the invasion of Ukraine in 2022, the United States became the world’s largest LNG exporter. Oil also remains a significant trade item as Korea ranked among the top five destinations for U.S. crude export in 2022—10 percent of the total share.

Seeking ways to reduce the bilateral trade deficit, increasing Korean purchases of U.S. LNG is likely to be on the negotiating table for an intergovernmental deal. Indeed, Trump has indicated that large-scale purchases of U.S. LNG are part of the ongoing discussions with Korea and has floated the idea of Korean involvement in Alaska’s LNG pipeline project. The Wall Street Journal reported on April 17 that Korea “will soon send a delegation to Alaska” to discuss its potential participation, making the issue a major negotiating factor on the horizon.

A Mar-A-Lago Accord?

Aside from one-off reprieves for investment concession, with more than seventy countries seeking to achieve their own tariff alleviation, each topic discussed above has the potential to be neatly tied together as part of some grand bargain or historic negotiation. Therefore, it is likely that a full economic reordering involving tariffs, foreign exchange valuation, and rethinking of the dollar’s role in international reserves would be rolled into some form of a Trump-led international accord.

This idea has come to be known as the “Mar-A-Lago Accord,” after the U.S. president’s eponymous resort in Florida—first posited by Trump’s Chair of the Council of Economic Advisers Stephen Miran in his November 2024 essay ominously titled “A User’s Guide to Restructuring the Trading System.” The document argues that “the root of the economic imbalances lies in persistent dollar overvaluation that prevents the balancing of international trade” and that this is “driven by inelastic demand for reserve assets.” Miran offered tariffs as a means of increasing negotiating leverage for “making deals,” to which he offered a Trump-led deal as the potential “Mar-A-Lago Accord.”

In addressing the feasibility of striking a grand accord similar to the 1985 Plaza Accord or the Louvre Accord of 1987—both of which aimed to partially restructure the international economic system—Miran singled out Korea’s roughly USD 420 billion in foreign exchange reserves (alongside China and others), stating that “a multilateral approach to dollar adjustment will only work if our trading partners have dollars to sell.” In a follow-up speech given by Miran at the Hudson Institute on April 7, he remarked on the need for “burden-sharing at the global level” and offered five potential means for countries to do so: tariff acceptance without retaliation; purchasing more U.S. goods; boosting foreign defense spending; investments in U.S. manufacturing; or, most directly, “simply writ[ing] checks to Treasury.”

Should countries agree to some form of negotiation, any of the aforementioned points appear to be possible pathways.

 

Tom Ramage is Economic Policy Analyst at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from the White House’s Official Flickr Account.

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