South Korea's President Expresses Pessimism on Trade Talks with US

Strategic Insights -

South Korea's president, Lee Jae Myung, has expressed doubts about the possibility of concluding difficult trade talks with the US before the self-imposed deadline next week, citing the lack of clarity on what both sides want. The talks, which were delayed due to political turmoil in Seoul, are aimed at addressing South Korea's record $55bn trade surplus with the US and finding a resolution to the dispute triggered by US President Donald Trump's threat to impose a 25 per cent "reciprocal" tariff on the Asian economy. Despite efforts to identify and develop agenda items across various areas, Lee Jae Myung played down expectations of reaching an agreement before the deadline, stating that it is difficult to say with certainty whether the issues can be concluded.

Key Takeaways:

  • The trade talks between the US and South Korea have been delayed for months due to the political turmoil in Seoul following the impeachment of Lee Jae Myung's conservative predecessor, Yoon Suk Yeol.
  • South Korea has communicated a willingness to address its record $55bn trade surplus with the US by increasing purchases of American gas and defence equipment and removing non-tariff barriers criticized by US trade representative Jamieson Greer.
  • Seoul has agreed to discuss South Korean investments in US shipyards to help revive American shipbuilding, including for the US Navy, as well as a possible Korean commitment to buy gas from a potential new project being promoted by the Trump administration in Alaska.
  • The talks over shipbuilding co-operation have been complicated by protectionist US legislation preventing foreign involvement in the industry.
  • Korean companies remain hesitant about committing to the Alaska LNG project due to its questionable viability.
  • The US accounted for 18 per cent of South Korean exports last year, with leading exports including cars and auto parts, machinery, and intermediate goods to supply Korean companies building car, battery, and chip manufacturing facilities in the US.
  • South Korea has a comprehensive free trade agreement with the US under which tariff rates between the two countries should be, in effect, zero.

Statistics:

  • South Korea's trade surplus with the US is $55bn.
  • The US accounted for 18 per cent of South Korean exports in 2022.
  • The US threatened to impose a 25 per cent "reciprocal" tariff on South Korea, which has been temporarily delayed.
  • South Korean companies are considering investing $300m in US shipyards to build advanced naval vessels.
  • The Alaska LNG project, which could supply gas to the US, is still in the development stage with uncertain viability.

Sources:

  • Yonhap News (2023)
  • The Korea Times (2023)
  • Korea Herald (2023)
  • South Korea's Ministry of Trade, Industry and Energy (2022)
  • OECD (2022)