Trump announces trade deal with South Korea... with 15% tariffs

SadaNews - U.S. President Donald Trump announced that he reached a trade deal with South Korea, imposing a 15% tariff on its exports to the United States, which includes Seoul's commitment to invest $350 billion in an investment fund in America.

Trump wrote on his social media platform on Wednesday: "We have agreed on a 15% tariff for South Korea. America will not be subject to tariffs."

The investment fund announced by Trump is linked to a similar $550 billion fund promised by Japan earlier as part of its effort to reduce threatened tariffs.

Similar to Japan's commitment, which was likened to a sovereign wealth fund, the spending from South Korea's account on investments in America will be under Trump’s personal supervision, according to the President.

Trump added that South Korea also agreed to "accept American products, including cars, trucks, agriculture, and others." This is likely to take the form of an agreement with Seoul to accept vehicles and trucks manufactured according to American safety standards.

It was not immediately clear whether the agreement guarantees discounts on tariffs imposed on Korean cars and parts, which has been a major point of tension in recent negotiations between the two countries.

Korean commitment to buy American energy

Trump stated that South Korea will purchase liquefied natural gas or other energy products worth $100 billion.

This commitment comes in addition to the European Union's promise to buy $750 billion of American energy over three years, amid growing questions about the United States' ability to meet the quantities specified in its trade agreements with other nations.

Trump has focused his trade agreements on investments within America and purchasing commitments, particularly those related to the country's oil and gas wealth.

The 15% tariff rate for South Korea crowns months of negotiations and helps Seoul, America’s sixth-largest trading partner, avoid a 25% tariff that would have taken effect on August 1, alongside new sanctions on dozens of American trading partners.

Internal pressures in Seoul

The negotiations have been particularly sensitive for the new South Korean government, as President Lee Jae-myung considered allowing the U.S. greater access to the beef and rice markets, an issue that is politically sensitive and sparked widespread protests in 2008.

Trump stated that the South Korean president will visit Washington within the next two weeks for a bilateral meeting.

The concessions made by Lee risk undermining his currently stable time in office, by stirring anger among farmers and fracturing his party. His victory in the June elections, following months of political upheaval, has led to improved consumer and business confidence and a surge in the stock market to record levels.

However, South Korea has been trying to catch up in the trade negotiations to avoid the damaging effects of comprehensive tariffs on a fragile economy that has just begun to recover from a contraction.

South Korea has an existing free trade agreement with the United States, and its major corporations had pledged to invest tens of billions of dollars during the course of the negotiations.

Asia races to avoid high U.S. tariffs

In recent weeks leading up to the August 1 deadline, several Asian countries have been racing against time to secure better terms.

The Japanese deal has set a new tariff level at 15%, coupled with an investment commitment, which Japanese authorities later clarified would almost entirely be in the form of loans, while Indonesia and the Philippines were granted a 19% rate, and Vietnam's rate reached 20%.

Thailand and Cambodia, which have been involved in border clashes, face tariffs of 36%, and they were given an additional incentive to commit to a ceasefire when Trump stated that the U.S. would not back down from the high tariffs as long as the dispute between the two countries continued.

In this context, an armed conflict erupted on July 24, marking the fiercest clashes in nearly a decade between Cambodia and Thailand over border disputes. This has brought various parties, led by U.S. President Donald Trump, into the fold of resolving the crisis.

Hours after threatening not to finalize any trade agreement with the two countries unless they reached an accord, both countries agreed to sit down at the negotiating table.

These threats highlight the critical role Washington plays and the extent to which both countries are linked to the global trading system, despite the enormous disparity in the size of the two economies and their trade connections to Washington, which made Trump's main weapon, tariffs, an immense leverage.

Cautious recovery in Thailand

Thailand is the second-largest economy in Southeast Asia after Indonesia, with a GDP of $514.8 billion in 2023, and it is expected to rise to $546.2 billion by 2025, according to the World Bank.

Even before the outbreak of armed conflict, the country, which is home to about 71 million people, was feeling the heat from the changes that the American President was making to the structure of global trade.

The country's economy relies heavily on the service sector, which contributed about 58.5% to GDP in 2023. Industry contributed about 32%, and agriculture around 8%.

Nevertheless, the World Bank has lowered its growth forecast for Thailand's economy for the current year to 1.8%, down from 2.9% in previous forecasts. This downgrade came mainly from the prevailing uncertainty in the trading environment due to Trump's policies.

Trump did not forget to target Thailand with reciprocal tariffs, as he announced in April that it could face tariffs of 36% on its exports to the United States, which are considered the country's largest export destination.

According to U.S. Department of Commerce data, total goods trade with the United States in 2024 was about $81 billion, including $63.3 billion in Thai exports to the American market, which explains the extreme sensitivity towards any threat of tariffs or even the failure to reach a trade agreement.

Thailand is also the thirteenth largest supplier to the American market, with its exports representing about 2.1% of total U.S. imports. Thailand had been in advanced discussions to sign a trade agreement with Washington before the conflict began.