The New U.S. – South Korea Trade Deal
- ISCRO MSU
- Nov 20, 2025
- 9 min read
Written by Veena Raigaonkar (Research Lead), Sophie Aguas, Daniel Schneider
EXECUTIVE SUMMARY:
U.S. - South Korea in works of making a trade deal to lower tariffs to 15% on Korean goods and implementing Korean investment worth US$350 billion into US projects.
Trade deal will impact import-export trade, including automobiles, gas, circuits, and electric vehicles.
Geopolitical tensions fluctuate with current events such as Georgia ICE raid of Korean immigrant workers at Hyundai
Introduction
In July 2025, South Korea and the United States reached an agreement on a new trade deal, resulting in tariff and investment changes. US President Donald Trump said that the previously proposed 25% tariffs on South Korean imports to the US would decrease to 15%, in return for South Korea’s promise of a US$350 billion investment for projects in the US, as well as a purchase of energy products worth US$100 billion. The investment money may be divided as follows: $150 billion towards US shipbuilding and $200 billion towards certain sectors, including semiconductors, nuclear energy, batteries, etc.
On October 29, 2025 at a summit for the Asia-Pacific Economic Cooperation forum in South Korea, President Trump announced that he reached an agreement with South Korean President Lee about the details of the trade deal, finally concluding months of debate and discussion on the framework proposed in July 2025. The features of the deal consist of a US$200 billion cash investment (with up to US$20 billion in annual investments and profits split between the US and South Korea until recovery of initial investment) and the remaining US$150 billion accounted by a shipbuilding partnership between the two countries.
Upon the finalization of the trade deal, it is certain that the US-South Korea trade deal will significantly impact both national economies, particularly regarding import/export trade and international relations.
The Geopolitical Atmosphere
The United States and South Korea’s partnership has taken a step that is far beyond traditional trade liberalization. In the current geopolitical climate, economic cooperation has increasingly become a pillar of security policy than ever before. Since 2022, the US has seen an increase in the linking of defense interests with industrial competitiveness (defence.gov). This is clearly exemplified in the CHIPS and Science Act enacted that same year (Congress.gov). Since then, South Korea has become a part of this effort (CEIP). The United States increasingly views South Korea as a partner in the securitization of supply chains for semiconductors, automotive, shipbuilding, and batteries, which are sectors that are considered extremely vital to national and economic resilience (Reuters). The newest framework set by the Trump administration on July 30th, 2025, sets a new tariff percentage of 15% (down from the initially threatened 25%) on South Korean imports in exchange for a “$350 billion investment pledge” (Reuters). This reflects a shift from transactional trade to strategic interdependence.
In 2025, the trade framework that was negotiated was done so in an environment that was defined less by cooperation and more by coercion. While this was framed by the Trump administration as a strategic alignment to strengthen allied supply chains (CSIS), many are framing this agreement as part of a wider pattern of “Coercive trade deals” that undercut economies in both the US and Asia (Asia Times). The Trump Administration continuously uses language of “reciprocity” and “reinforcement” (The White House) to justify economic nationalist policies, yet most economic experts agree that such sweeping tariffs and investment demands have reduced global confidence, exacerbated trade deficits, and have contributed to long-term job losses (NBER, Peterson Institute, Intereconomics). Rather than placing an emphasis on genuine strategic alignment, the 2025 trade framework demonstrates how short-term political optics can massively erode sustainable economic cooperation.
The contradictions of Trump’s economic policy became clear almost immediately after the framework was agreed upon. The Hyundai ICE raid in Georgia, which saw the detention of hundreds of Korean workers, exposed how an administration claiming to strengthen allied supply chains was simultaneously undermining them through a domestic cultural and political spectacle.
Impact on American Economy - South Korean Imported Goods
The trade deal will have significant impact on the American economy in regard to the Korean imported goods that American businesses rely on for efficient manufacturing. The graph below displays the top exported items from South Korea to the US in 2023, adding up to a total of $118 billion USD.
The top three imported goods from Korea to the US are: Automobiles, Electric Batteries, and Office Machine Parts.
Automobiles and Parts
South Korean imports of vehicles and parts to the US jumped from US$38.4 billion in 2023 to US$45.38 billion in 2024, a significant and unprecedented increase in imports by 18%. The figure below displays the growing trend of US imports from South Korea of Vehicles:
In 2024, Korean vehicles accounted for 8.6% of all vehicles sold in the US, generating almost half of Korea’s total automobile export revenue. Korea was also the third largest exporter of vehicles to the US, just behind Japan and Mexico (Korea Economic Institute of America).
Understanding the magnitude of Korea’s presence in the American automotive industry, the tariffs may have a significant impact on vehicles in the US. A survey conducted in early 2025 by the Korean Chamber of Commerce and Industry showed that 60.3% of the 2,107 manufacturer respondents said they are under direct or indirect impact by the new US tariffs.
The KCCI also estimated that 700,000 to 900,000 vehicles could be affected by the new US tariffs, including both Korean parts and full exports.
The revised 15% tariffs could place an additional US$6.8 billion in import costs total on Korean automotive companies, which could reflect in their changed profit margins and/or customer prices. The actual costs of end products could vary depending on imported parts/vehicle assembly procedures for companies but ultimately would result in increased cost and barriers for American consumers and Korean automotive exporters.
Electric Batteries/Vehicle Components
In 2023, SK held the largest share in the US import for battery materials market, outranking China and Japan by exporting key battery materials such as anode and cathode materials and separators. The total value of US imports from SK was US$9.7billion, a 93.1% increase from 2020 with imports valued at $5.02 billion (Yonhap News Agency). Korea’s dramatic rise in the US market for batteries stems from the trade disputes between the US and China, a rival competitor of South Korea.
With the deal’s new implications, a 15% tariff on Korean battery materials would result in approximately US$1.46 billion in additional import costs, based on the 2023 import value of US$9.7billion. The costs could be managed by company absorption into profit margin or raising prices for customers but ultimately will put a strain on all parties involved through cost propagation downstream into electric battery and vehicle production. To mitigate tariff costs, US companies may change suppliers for battery materials and divert from Korean businesses, depending on feasibility and technological availability.
Possibly influenced by changes in trade policy, Korean battery firms including LG Energy Solution (LGES), SK On, and Samsung SDI have been continuing expansion of US battery plants and joint manufacturing operations. For example, LGES operates eight manufacturing facilities across the US currently. Additionally, LGES also acquired a previous joint manufacturing venture with General Motors in Lansing, MI (Battery Technology).
Office Machine Parts
Data from FRED shows that import prices for “parts and accessories for computers and other office machines” have fallen steadily over the past few decades, with the index now at 56.9 (Figure 4). That long-term decline reflects how global supply chains, including South Korea’s electronics production, helped keep U.S. import costs low. However, with the new U.S.-Korea trade deal introducing a 15 % tariff, those prices could climb again, making Korean office machine parts less competitive in the U.S. market.
In turn, Korean firms may feel pressure to shift investment toward U.S.-based production to dodge tariffs or slower export growth to America could reduce their incentive to expand there. Indeed, analysts already warn that the raid and enforcement uncertainty could make companies “very hesitant” to invest in the U.S. going forward.
Impact on South Korean Economy - American Imported Goods
The tariffs and deal will have a significant effect on the Korean economy as well, particularly on imported goods from the US.
The top exports from the US to South Korea in 2023 are: crude petroleum (gas), machinery, cars, and integrated circuits.
Gas
The figure above shows that gas has the largest value of imports from the US to South Korea, worth over US$12 billion in 2023. In 2024, the import value of liquefied natural gas (LNG) from the US to South Korea specifically was worth US$3.1 billion, amassing a large proportion of all gas product imports. Considering South Korea's total imports of LNG valued at US$29 billion in 2024, US imports accounted for over 10% of all imports (Korea Economic Institute). The figure below shows the LNG imports in tons over the last 9 years.
As part of the US-SK trade deal, South Korea promised to purchase US$100 billion in US energy products, including liquified natural gas (LNG). The investment is intended as an effort to address the trade deficit the US has with South Korea (US$66 billion in 2024) and ultimately ease US tariff pressure. The US has consistently engaged with South Korea in a goods trade deficit since 1999, raising concerns of economic dependency of long-term economic dependency on South Korea, as well as accumulation of foreign debt and reduction of domestic jobs in the US. While this initiative addresses the trade deficit concerns, South Korea may need to approach the investment with caution.
The country’s demand for LNG is declining, with a 5% drop in 2023, projected to decrease by 20% through 2030 (IEEFA). The costs of additional LNG purchases may put a strain on the Korean economy and energy sector. Additionally, the investment may conflict with Korea’s sustainability and decarbonization goals due to the increase in LNG availability. For example, the country is committed to achieving net zero carbon emissions by 2050, which requires not only the acknowledgement of LNG as a fossil fuel, but also the understanding that its usage should decline throughout the nation. Ultimately, the investment may work towards addressing the trade deficit but may not be economically or environmentally viable for South Korea.
Cars
The volatile trade environment that surrounds the 2025 framework has not only influenced diplomatic trust, but it has also produced tangible economic distortions across key industries. This is the most visible in the automotive sector, which remains one of South Korea’s largest exports to the United States and a central focus of U.S. tariff and investment policy. For the automotive market in South Korea, the 2025 trade deal represented more risk than opportunity. Although the tariff reduction prevented a steeper 25% rate, the remaining 15% baseline set by the Trump Administration, paired with political volatility in Washington, has dampened consumer and investor confidence (Automotive Logistics).
Korean imports of U.S. vehicles fell nearly 10% in the second half of 2025, reflecting both rising currency costs and growing skepticism toward the stability of the trade partnership (Reuters). The Hyundai ICE raid in September further reinforced perceptions that the United States, while demanding Korean investment, remained an unpredictable partner in industrial cooperation.
Circuits
According to the U.S. Bureau of Labor Statistics via FRED, export prices for U.S. electronic integrated circuits have shown a consistent long-term decline, reaching 53.5 in August 2025 (Figure 7). This steady drop highlights how American manufacturers rely heavily on cost efficiency to stay competitive in overseas markets like South Korea, where demand for advanced chips and components continues to grow. The data suggest that any disruptions to trade relations—such as shifts in tariffs, compliance rules, or cross-border labor mobility—could quickly affect U.S. export competitiveness in high-tech sectors.
However, following the recent ICE raid at a Georgia Hyundai EV battery-plant, that stability is now being tested. Although the U.S.-South Korea trade deal promised to deepen industrial cooperation and investment in semiconductors. The raid has raised doubts among Korean investors about how secure such agreements are in practice. Korean firms have become more hesitant to move forward with U.S. projects, citing concerns over unpredictable enforcement and regulatory inconsistency. If those doubts persist, they could slow joint investment in advanced manufacturing and weaken the trade momentum the deal was meant to create.
ICE Raid on a Hyundai EV Battery Plant in Georgia
On September 4, 2025, U.S. Immigration and Customs Enforcement (ICE) carried out a sweeping raid at Hyundai’s EV battery-plant site in Ellabell, Georgia (a joint Hyundai-LG venture), detaining about 475 workers—over 300 of whom were South Korean nationals. What made the operation particularly provocative was that many of the detained workers held short-term visas or visa-waiver entries for technical installation, training, or support tasks (not low-wage labor), which are commonly used in transnational manufacturing projects.
The backlash was rapid: Seoul condemned the raid as a breach of trust in the U.S.-South Korea alliance, demanded assurances on visa treatment, and temporarily halted some business travel to the U.S. Politically, the ICE raid came at a delicate time: it came mere weeks after Seoul had committed to a $350 billion investment pledge in the United States as part of the broader tariff-and-trade realignment. The sudden enforcement action risked undercutting the very climate of trust that the deal sought to build.
Observers in South Korea and beyond quickly interpreted the raid as a stark signal that U.S. immigration enforcement could trump—even contradict—diplomatic assurances and economic treaties. In effect, many saw it as an assertion that executive enforcement of prerogatives may override negotiated commitments. That perception carries a real economic risk: it may erode investor confidence among Korean firms weighing U.S. expansion. South Korean President Lee Jae Myung warned explicitly that Korean companies could become “hesitant” to make further U.S. direct investments unless the visa regime is fixed.
In response, Seoul is now attempting to convert Washington’s perceived overreach into diplomatic leverage. South Korean officials are pressing for stronger visa protections for Korean workers abroad, firmer guarantees that trade and investment agreements won’t be invalidated by domestic enforcement actions, and structural assurances that future economic agreements cannot be jeopardized by unilateral immigration measures.
Conclusion
The latest trade framework set between the United States and South Korea was marketed as a strategic maneuver that would strengthen trade. This design, however, along with the immediate aftermath, reveals a negotiation driven more by leverage than by alliance. The tariff-for-investment strategy implemented by the Trump Administration (15% baseline tariff in exchange for a $350 billion pledge and a $100 billion energy purchase) repositions global trade as an arm-extension of domestic and cultural politics. This connection has strained and will continue to diminish the very sectors that both governments claim that they want to secure. The recent Hyundai ICE raid has exemplified this contradiction. Washington invites Korean capital to onshore supply chains while simultaneously creating an environment of unpredictability in the labor market.
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