Why tariff negotiations with the U.S. are well worth trying: South Korea

The tariff pressure from US President Donald Trump is affecting the entire world. This is creating tension for the South Korean government, which relies on exports and a significant part of its security on the US.
It is no wonder that they feel frustrated, especially in a situation where President Trump has notified them of the imposition of a 25% reciprocal tariff.
However, there is no need to be overly worried. The United States is also concerned about the welfare of its consumers.
The United States and South Korea are entering tariff negotiations bearing the burden of eroding trade (i.e., higher prices). There is clearly room for mutually beneficial common ground between the two countries.
The trade policy of the Trump administration in its second term is based on the banner of "America First," and the primary goal is to reduce the trade deficit.
The plan also calls for promoting trade and production, thereby expanding employment and promoting economic growth. Therefore, the international trade network, which has been built on the basis of "efficiency," is intended to be reconstructed to some extent.
If China is the first target, it is only natural that export-oriented nations such as South Korea and Japan will be next.
It is important to note that tariffs are also a type of tax.
For these people, they will have to pay a higher price to purchase Korean products due to the tariffs, which will lead to a so-called "reduction in consumer welfare."
The greatest beneficiaries of the free trade system were
The main driver of this boom was American consumers. Their robust consumption was supported by China, which joined the WTO in 2001, and as a result was able to achieve "sustainable growth" even under low inflation.
In other words, the biggest beneficiary of free trade is the U.S. Ahead of tariff negotiations with the U.S., the Korean government's biggest concern is that it "does not have a clear card to offer to the U.S. side."
Proposals such as increasing defense spending and further opening agricultural markets could be put forward, but it is unclear whether President Trump would accept these.
However, South Korea has already made some concessions, and they have been in the interest of the US economy.
Ironically, the trade surplus with the United States is evidence of this. It is also the main reason why President Trump accuses South Korea of "unfair trade."
According to the "Structural Analysis of South Korea's Exports to the United States" published by the Korea Institute for Industrial Economics and Trade in April 2024, South Korea's recent trade surplus with the United States is due to cooperation between American manufacturing and Korean companies.
This is the inevitable result of the Korean companies helping to grow the US manufacturing industry.
According to the report, the trade balance with the United States will grow from $16.6 billion in 2020 to $28 billion in 2022.
The figure is expected to grow to $56 billion by 2024. Looking more closely, the figure includes capital goods such as machinery and equipment used by Korean companies in the process of building and operating factories in the United States, as well as goods imported from China.
This is the result of South Korea responding positively to the investments the US side requested from South Korean companies during the Biden administration.
In short, the increase in Korean companies’ investment in the United States has led to an increase in the procurement of Korean-made industrial goods.
This means that the trend is "Increased exports of intermediate goods and capital goods → Strengthened cooperation between Korea and the US manufacturing industry."
If raw materials procurement within the United States increases, the current trade surplus with the United States will naturally shrink. In fact, Hyundai Motor has announced plans to invest a total of $21 billion in the United States by March 2025.
LG Energy Solutions, together with GM, reportedly acquired a battery factory in Michigan for $2 billion. This is actually a trade surplus that is beneficial to the United States.
It is ironic that it is being used as a tool to pressure South Korea. Nevertheless, South Korea has thousands of years of experience in overcoming difficult situations through diplomacy between major powers.
Moreover, the United States is not an entity to be underestimated. The United States is not in an absolute advantageous position, nor is South Korea in a unilaterally disadvantaged position. The United States also does not expect its demands to be fully accepted.
They would not consider doing so because it would have a negative impact on the welfare of their consumers. Therefore, it is necessary to find a suitable compromise for both countries, which is
From a broader perspective, this is not a difficult task. Although it is difficult to come up with a definitive answer at this point, it is believed that there is a good chance of reaching an agreement from the perspective of mutual benefit.