The Korea-US Economic and Trade Agreement: Changes and Concerns in the Business Sector

On August 1st, the economic and trade negotiations between South Korea and the United States reached an agreement. The US will reduce the "reciprocal tariffs" and auto tariff rates imposed on South Korea to 15% uniformly. South Korea will not further open its rice and beef markets. Both sides also agreed to establish a US investment fund worth 350 billion US dollars, covering multiple fields such as shipbuilding, semiconductors, and nuclear power. In the current context of the continuous evolution of the global business landscape, the economic and trade agreement reached by South Korea and the United States is like a huge stone dropped into a lake, causing thousands of ripples, and has had extensive and far-reaching impacts on the business sector. This agreement not only reshaped the basic framework of bilateral trade and investment between South Korea and the United States, but also triggered chain reactions at the global industrial chain and supply chain levels.

From the perspective of bilateral trade, the product structure of South Korea's exports to the United States will undergo adjustments. Previously, South Korea's exports to the United States were highly dependent on automobiles, semiconductors, petrochemical products, etc. The tariffs imposed by the United States on South Korea have been reduced to 15%, although this avoids the worst-case scenario, it still has an impact on South Korean export enterprises. The automotive industry, which previously enjoyed zero-tariff treatment under the South Korea-US Free Trade Agreement, now applies a 15% tariff along with Japanese cars. This undoubtedly weakens the price competitiveness of South Korean automobiles. According to relevant calculations, if the 15% tariff is fully implemented, the annual costs of the Hyundai-Kia automotive group will increase significantly, and the enterprises may face a decline in profit margins or accelerate local production and transfer their factories to the United States.

In terms of investment, South Korea has committed to establishing a US$350 billion investment fund for the United States. Among this, US$150 billion will be designated as special funds for South Korea-US shipbuilding cooperation. This move presents both opportunities and challenges for the South Korean shipbuilding industry. From the perspective of opportunities, the cooperation between South Korea and the United States may lead to new technological breakthroughs. The combination of South Korea's shipbuilding technology with the software strength and market of the United States is expected to open up new business areas, such as jointly developing future ship types like autonomous vessels. If the United States relaxes restrictive regulations such as the "Jones Act", South Korean shipbuilding enterprises will be able to obtain more domestic shipping-related orders in the United States. However, potential risks cannot be ignored. On one hand, the fund size is far greater than the combined market value of the three major South Korean shipbuilders. The specific operation mechanism is not yet clear, and there are risks in management and operation. On the other hand, during the joint design and production process, South Korean core technologies may be leaked, and after the recovery of the US shipbuilding industry, the reliance on orders from South Korean enterprises may decrease.

At the global industrial chain and supply chain level, the economic and trade agreement between South Korea and the United States has brought about complex impacts. In the semiconductor sector, South Korea is a significant global semiconductor production base, with companies such as Samsung and SK Hynix holding important positions in areas like storage chips. Although this agreement did not specify the details of semiconductor-related tariffs and industrial policies, South Korea's increased investment in the US semiconductor industry may change the regional layout of the global semiconductor industrial chain. On one hand, South Korean enterprises setting up factories in the US or strengthening cooperation can help them get closer to the US market and technological research and development resources, enhancing their capabilities in high-end chip design and advanced manufacturing processes; but on the other hand, this may also lead to the hollowing out of South Korea's domestic semiconductor industry, with technology, talent and production capacity flowing out, affecting South Korea's long-term advantages in the global semiconductor industry competition.

From the perspective of agricultural product trade, although South Korea emphasizes not further opening up its rice and beef markets, the United States has been trying to open up the Korean agricultural market. In the future, the United States may exert indirect pressure on Korean agricultural imports through means such as non-tariff barriers, for instance, by setting strict inspection and quarantine standards. This will not only affect the stability of the Korean agricultural industry, but also have a chain reaction on downstream industries such as processing and circulation of related agricultural products in South Korea.

The impact of this Korea-US economic and trade agreement on the business sector is a mixture of benefits and drawbacks. While South Korea gains certain certainty in export markets and some opportunities for industrial cooperation, it also faces risks such as a decline in industrial competitiveness and industrial hollowing out. From the perspective of the global business landscape, this agreement further highlights the United States' strategy of reshaping the industrial and supply chains through tariffs and trade policies in the global trading system, in order to achieve the "America First" goal. For other countries and regions, they also need to closely monitor the spillover effects brought by this agreement and plan countermeasures in advance, in order to maintain an advantage in the constantly changing global business competition.