15% Tariff Deal Reshapes U.S.–Korea Economic Relations

The historic trade relationship between South Korea and the United States has undergone a paradigm shift since the signing of the trade agreement in July 2025, which imposed a 15% tariff on imports from South Korea. This marks a major shift, as the trade relationship had remained tariff-free since the United States-Korea Free Trade Agreement (KORUS FTA) in 2012.

The process toward the agreement wasn’t easy; after several months of tense negotiations, the pact was finally reached following warnings that tariffs could rise as high as 25%. However, both parties were eventually able to agree upon a 15% tariff, which the US officials were clearly delighted by, citing it as a win for “fair and reciprocal trade.” South Korea offered to invest around $350 billion in the US, in addition to its commitment to spend $100 billion on energy from the US, including LNG. The new pact has been interpreted by the US government as having the potential to improve its trade balance, while South Korea termed it a “necessary compromise that will protect important elements of its trade-reliant economy.”

Although the tariff rate has been lowered, the Bank of Korea indicated that the trade pact could still cause a considerable setback to South Korea’s economy. The Bank of Korea expected that the pact could lead to a decline in domestic growth by as much as 0.6 percentage points for the next two years, mainly because it could adversely affect the automotive, steel, and semiconductor industries, which are crucial to South Korea’s economy.

The implications associated with the new trade framework, particularly its compatibility with the existing KORUS FTA, have also been questioned by various legal experts. The modified tariff structure, which entails the provision of a ‘blanket tariff rate,’ has also raised questions, notably whether it can supersede certain elements in the existing trade framework. Therefore, the implications for the trade regime remain uncertain.

Although the new trade pact has caused controversy, it has also reiterated the strength of the relationship. “Our partnership is founded on a deep foundation of trust that has accumulated over many decades,” said a top South Korean trade negotiator. However, the implications of the trade pact reach well beyond the relationship that has been formed. With the “reciprocal trade policies,” it is also causing people to wonder if the days when tariffs were not needed for big trade are behind us.

The implications that could arise from the trade arrangement could play a significantly important role, where leverage and investment become important factors that shape the economic relationship. With the evolving trade environment, it could signal a fundamental shift that could shape trade agreements in the future.