【Text by Observer Net, Zheng Lehuan】
On July 23, the US and Japan reached a trade agreement: the US agreed to reduce its tariff on Japanese goods from 25% to 15%, while Japan will invest 550 billion USD in the US and open its agricultural market as an exchange.
As soon as this news came out, the pressure undoubtedly shifted to South Korea - this agreement immediately became a benchmark for the US to exert pressure on South Korea: if South Korea fails to reach a similar agreement by August 1st, its exports of cars, steel, and other goods to the US will face a 25% punitive tariff. More importantly, even if South Korea successfully negotiates, if it cannot lower the tariff base to 15% or below, its key industries competing with Japan - especially the automotive industry - will be at a disadvantage, which would constitute a major blow to South Korea's domestic economic development.
Observer Net connected with Min Gye-jeong, the director of the China Research Institute at Hanyang University, and Kwon Il-sook, a professor of international management at Han-nam University, to have these two Korean experts analyze South Korea's current predicament.
The Three Major Difficulties in the South Korea-US Tariff Negotiations
Currently, South Korea faces three major difficulties in the tariff negotiations with the Trump administration: automobiles, investment in the US, and opening up the agricultural market. These issues involve competition between South Korean and Japanese industries, domestic economic considerations and the ruling party's concerns, public opposition, and potential impacts on the domestic agricultural economy. Therefore, we can raise the following three questions:
First, how should South Korea determine its negotiation bottom line in the automobile industry?
In 2024, South Korean car exports to the US accounted for 27.1% of total exports to the US, playing an absolutely dominant role in South Korean car exports. According to data from the JoongAng Daily, in terms of market share in the US, Japanese cars and parts account for 13%, while South Korean cars account for 11.5%, a difference of just 1.5 percentage points. Furthermore, the price of Hyundai Sonata in the US is 26,900 USD, while Toyota Camry costs 28,400 USD, which is more than 5% higher. In addition, the market share of Hyundai and Kia cars in the US market has risen from 7.8% in 2019 to 10.9% in the first half of this year.
The above data fully illustrates that the South Korean automobile industry is highly dependent on the US market, and it is also the lifeline of the South Korean economy; South Korean cars have already formed a scale advantage in the US market and are growing rapidly; the competition between Japanese and South Korean cars is closely contested, and small price changes can disrupt the competitive landscape...
Regarding this, Professor Kwon Il-sook of Han-nam University told Observer Net, "In the negotiations, South Korea must strive to achieve the same level as Japan to maintain price competitiveness in the US market."
Regarding the "same level," Kwon Il-sook provided further explanation: since Japan and the US have not signed a free trade agreement (FTA), they originally bear a 2.5% tariff, while South Korea currently has zero tariffs on cars due to the Korea-US FTA. If the final result of the South Korea-US tariff negotiations is set at 15%, it will be 2.5% less favorable than now. Therefore, the "same level" mentioned here refers to a tariff base of 12.5%.
"If the outcome of this negotiation is not good, considering cases where tariffs are reduced by category, there is still a possibility of re-negotiation," Kwon Il-sook added.
Second, what does the opening of the agricultural market mean for South Korea?
Due to the protest demonstrations by South Korean citizens against imported American beef in 2008, the South Korean government announced a ban on importing beef over 30 months old. Now, the US is asking South Korea to lift this ban and relax fruit inspection standards - which is clearly challenging South Korea's "negotiation red line."
On July 9th, some apple producers and a citizen group held a protest outside the Blue House in Seoul's Yongsan district, opposing the government's import of American apples.
However, the case of Japan shows that opening up the agricultural market is an important bargaining chip to gain tariff concessions - something the South Korean government is very clear about. South Korean media has editorials stating that with other countries opening their markets, only Russia, Belarus, and South Korea currently restrict or prohibit the import of American beef, putting South Korea in a difficult position - it should learn from Japan, Australia, and the UK, and open up sensitive commodities such as rice and beef to reach an agreement with the US.
Regarding this, Kwon Il-sook pointed out:
When it comes to South Korea's ability to use relaxed agricultural regulations as a main bargaining chip in negotiations, "partial opening of the agricultural market" and "gradual opening of the market" could become a bargaining chip. In this context, the bargaining chips for the US negotiations could focus on shipbuilding cooperation, importing American crude oil, and expanding South Korean companies' investments in the US. Especially in the shipbuilding sector, Trump emphasized "rebuilding the US shipbuilding industry" and regarded South Korea's shipbuilding capabilities as a strategic partner, which might serve as a certain bargaining chip in the tariff negotiations with the US.
Third, how should South Korea respond to the "4000 billion USD manufacturing fund"?
In fact, Japan's "previous experience" is clear - despite reaching a tariff agreement with the US, the "5500 billion USD investment fund" may have been too costly. For South Korea, the US demands the establishment of a 4000 billion USD manufacturing fund - a figure equivalent to 80% of South Korea's annual budget.
Regarding this, there are two entirely different voices within South Korea: one voice argues that South Korea should follow Japan's example and establish a fund to support manufacturing investments in the US, as the immediate priority is to lower tariffs as much as possible; another voice believes that in the long run, this measure may accelerate the hollowing out of South Korea's domestic industries, which would be extremely detrimental to South Korea's economy.
Kwon Il-sook stated: In fact, South Korea has already prepared an investment plan exceeding "100 billion USD" to achieve the tariff negotiations. The 100 billion USD funds are composed of pure investment capital from South Korea's major groups, including Samsung, SK, Hyundai Motor, LG, Hanwha, HD Hyundai, etc., ten major groups; if government funds are added, the amount will increase further.
Regarding this investment plan, Kwon Il-sook said, "Although it is feasible to strategically exchange tariff reductions for investments in the US, it is essential to secure favorable conditions for South Korea's national interests regarding the decision-making power and profit distribution of the investment funds, and not simply replicate Japan's precedent."
Trump's "Cold Shoulder" Stemming from Lee Jae-yong's "Pro-China" Stance?
The impasse in the US-South Korea negotiations reflects the subtle changes in relations between the two countries since Lee Jae-yong took office.
Although Lee Jae-yong repeatedly emphasized in public that "all issues should prioritize the US", South Korea has still faced a series of "cold shoulders" from the US, such as the White House issuing an extremely rare statement the day after Lee Jae-yong was elected president, stating that "the US expresses concern and opposition to China's interference and influence on democratic countries"; usually, after a new South Korean president takes office, the US and South Korea will determine the schedule for the heads of state meeting within a month, but this time it clearly could not be held on time; finally, before the US-Japan tariff agreement was reached, "Japan's chief trade negotiator visited the US eight times, plus one summit meeting between Japan and the US", compared to which South Korea had intermittent ministerial meetings.
Additionally, since July, there have been multiple unexpected delays or "ghosting" situations between the US and South Korea, drawing high attention from the outside world:
On July 21, South Korea's National Security Advisor Wi Seong-lok was scheduled to go to the White House for a meeting, but was informed that Rubio could not attend due to an extended meeting with President Trump. The next day, US officials stated that a face-to-face meeting was still not possible. Therefore, although Rubio and Wi Seong-lok were both in Washington that day, they only had a phone conversation. Later, Wi Seong-lok met with Commerce Secretary Rutenberg and U.S. Trade Representative Grisham, but ultimately failed to meet with Rubio.
On the same day, South Korea's Foreign Minister Zhao Hyun-joo immediately tried to arrange a call with Rubio, but was unable to get a response.
On July 24, the US suddenly canceled the scheduled South Korea-US "2+2" financial and trade talks on July 25, citing an emergency schedule for Bessembel. It was reported that South Korea's Deputy Prime Minister and Minister of Planning and Finance, Go Yun-chul, learned of the cancellation of the meeting via email just over an hour before the flight departed. With the deadline for the negotiations on August 1 fast approaching, the postponement of the South Korea-US "2+2" dialogue further compressed South Korea's response time.
Therefore, part of the domestic public opinion in South Korea (especially the conservative faction) believes that Lee Jae-yong's "pro-China" tendency is one of the key reasons for Trump's "misunderstanding" and "cold shoulder".
So, how should we understand the subtle changes in the relationship between the US and South Korea since Lee Jae-yong took office? What is the purpose of Trump's "cold shoulder"?
Regarding this, Min Gye-jeong, director of the China Research Institute at Hanyang University, told Observer Net that the opposition and conservative factions in South Korea are trying to label Lee Jae-yong as a "pro-China" figure to attack him. However, Lee Jae-yong is not a pro-China person, but rather a pragmatist. Lee Jae-yong believes that the excessive "pro-American" and "pro-Japanese" stance of the Yoon Suk-yeol government has caused significant losses to South Korea's national interests, so he is trying to restore it to a normal balanced foreign policy.
Min Gye-jeong pointed out that Trump's "cold shoulder" is not only one of his unique negotiation strategies, but also a tactical move to subdue the new South Korean president. Taking the "operation command transfer plan during wartime" as an example, this plan was actually initiated during the Roh Tae-woo government, and later was decided after negotiations between South Korea and the US. However, with the changing scope and role of the驻韩美军 (US military forces stationed in South Korea), the US has no intention of reclaiming this power at all - "Therefore, Lee Jae-yong's proposal to recover the wartime operation command is seen as damaging to US interests, and the US may also manipulate South Korean conservatives to portray Lee Jae-yong as a pro-China figure."
Min Gye-jeong further analyzed that the inability to arrange a meeting between South Korean and US leaders can be seen as a game between the two countries. However, the conservative media in South Korea, fearing this atmosphere, criticize Lee Jae-yong for not meeting with Trump because he is "pro-China." Therefore, the image of Lee Jae-yong being "pro-China" in South Korean public opinion is not the view of ordinary people, but rather an attack from conservative media, and many citizens who support Lee Jae-yong do not consider him a pro-China person.
The Deadline Approaches, How Should South Korea Respond?
After the US-Japan tariff agreement was reached, the pressure shifted abruptly to South Korea, and a discussion erupted domestically about the agreement. Some views believe it is a "good performance," as it satisfies both sides; but others point out that Japan paid a relatively high price for it, emphasizing that South Korea must learn from it.
Ryosuke Akazawa, Chief Trade Negotiator of Japan, IC Photo
Min Gye-jeong pointed out:
First, Japan relied on the inertia of the US-Japan alliance relationship, expecting special treatment, but Trump showed no intention of considering the position of allied countries from the beginning - this was a miscalculation by Prime Minister Suga.
Second, Japan's political security autonomy is far below its economic scale, and the awareness of political leaders is completely controlled by the US.
Finally, Japan agreed to reduce export tariffs to 15% in exchange for investing 550 billion USD in the US, and 90% of the investment profits belong to the US - this is a predatory agreement.
A more serious issue is that the investment projects are decided by the US, and Japan has no right to participate in the decision-making - this is no different from colonial-era plundering.
At present, after completing the negotiations with Japan, the US immediately turned its attention to South Korea. "President Lee Jae-yong may temporarily stick to a firm stance to protect national interests, but whether South Korea can withstand Trump's unreasonable pressures is a question."
Additionally, in the conversation with Professor Min Gye-jeong, he also pointed out a significant disadvantage in South Korea's negotiations with the US - the lack of internal unity.
The conservative faction in South Korea, due to their "pro-American" and "pro-Japanese" sentiments, will not only not resist the US, but may also form a public opinion that "if South Korea maintains a 15% tariff, other areas can be compromised" by comparing the results of the negotiations with Japan.
Min Gye-jeong believes that the current conservative media viewing "maintaining a 15% export tariff as the bottom line for South Korea's negotiations with the US" is a major mistake in the negotiation strategy, "but more seriously, they don't even think that 'submitting to the US' is a big problem."
"It is sad that a large number of conservatives advocating for increasing the cost of stationing US troops in South Korea have emerged, which is the reality of South Korea. Additionally, decades of conventions have deeply rooted themselves in the bureaucratic system, and South Korean bureaucrats lack the will and ability to resolutely confront the US for the country's interests. Although the new government is striving to create a new atmosphere in the bureaucratic system, considering the approaching deadline for the tariff negotiations, the reality is indeed quite pessimistic."
Like other countries, the most critical issue for South Korea's "bottom card" is "what to give up."
Kwon Il-sook told Observer Net that Trump's tariff policy focuses on reducing the US trade deficit and revitalizing American manufacturing. At present, the US is targeting the opening of the agricultural market and the expansion of defense cost sharing in negotiations, and is likely to require South Korea to make exchanges in other areas. Therefore, for South Korea, "it is more important to clearly decide what to give up, rather than clearly what to gain."
Kwon Il-sook advocates that South Korea should strive to reduce the tariffs on core export products like automobiles to below 15% and ensure decision-making power in the operation of the investment fund - that is, South Korea cannot merely act as a "funding provider," but should ensure that the investment direction and supply chain stability and South Korea's industrial development are directly related.
After US President Donald Trump officially imposed a 25% tariff on foreign-made cars, export cars parked at Pyeongtaek Port in Gyeonggi Province. Yonhap News Agency
Of course, regardless of the outcome, the tariff negotiations will be the biggest challenge for the Lee Jae-yong government so far. If the final tariff negotiation results are unacceptable to the public, the opposition will continue to launch attacks, and original supporters may also change their attitude.
Min Gye-jeong believes that both progressive and conservative factions may erupt in dissatisfaction: the conservative faction will use this issue as an excuse to attack the ruling party, rather than solely targeting "concessions to the US"; while the progressive faction will use this to expand the space for questioning the identity of the Lee Jae-yong government.
"The progressive camp has already shown skepticism towards the Lee Jae-yong government's integration initiatives under the banner of pragmatism, and the South Korea-US tariff negotiations and the stationing fee negotiations for US troops in South Korea will become important tests to evaluate the Lee Jae-yong government, and this issue is expected to continue until the local council elections in June next year."
Summary
The tariff war launched by the Trump administration is pushing the world economy toward recession. South Korea's economic structure is highly dependent on exports, with a relatively limited domestic market, and exports are concentrated in a few categories such as automobiles and semiconductors. This structure, which is extremely vulnerable to external shocks, weakens South Korea's bargaining power and response space in negotiations with the US.
During the Moon Jae-in administration, South Korea's automobile production facilities and semiconductor factories began to shift to the US, and recently the shipbuilding industry has joined the trend - this trend has led to the decline of South Korea's domestic manufacturing capabilities and labor market shrinkage, among other socio-economic problems. If Trump pushes this trend further, South Korea's economy may face a severe situation.
According to reports, South Korea's Deputy Prime Minister and Minister of Planning and Finance, Go Yun-chul, will hold talks with US Treasury Secretary Janet Yellen on the 31st of this month, and on the same day, South Korea's Foreign Minister Zhao Hyun-joo will meet with US Secretary of State Antony Blinken. Unless there is an unexpected event, this meeting will become a key node in the US-South Korea negotiations.
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Original: https://www.toutiao.com/article/7532663117433422376/
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