UBS Economics-APAC Economic Perspectives _Korea the trade deal 2.0_ Deng-116894721

ab31 July 2025Global ResearchAPAC Economic PerspectivesKorea: the trade deal 2.0Trump 2.0 US and Korea dealPresident Trump announced through his social media channel that the US has agreed to a “Full and Complete trade deal” with Korea. Under the deal, the US tariff rate for Korea is set at 15% vs. 25% reciprocal tariff originally announced on 2 April (with the temporary 10% set to lapse on 1 Aug). According to President Trump, Korea will give to the US USD 350bn for investments owned and controlled by the US and selected by him. Korea will also invest a large sum for Korea’s investment purposes (to be announced in the bilateral meeting between the US and Korea presidents in the next two weeks). Furthermore, Korea will purchase USD 100bn of LNG and energy products. Korea will also be “completely open to trade” with the US and Korea will accept US products such as cars, trucks, and agricultural goods. Headline tariff lower than most other economies The 15% headline tariff would place Korea in the same tariff bracket as the EU and Japan. The majority of other Asian economies fall into higher tariff brackets. For the trade agreements that have been disclosed, Indonesia, the Philippines, and Vietnam are positioned within the 19-20% range. Currently, India faces a rate of 25%, while the incremental tariff rate set against mainland China remains at 30% (which includes a temporarily reduced reciprocal tariff of 10% and a 20% fentanyl tariff), in addition to the Section 301 tariff.Potential moderation of effective weighted average tariff rateWe estimate that the effective US tariff rate for Korea may decrease to 14.7% from the current 16.9% (Figure 5). Korea has much higher exposure to the Section 232 tariff on automobiles and auto parts compared to peers; approximately 38% of Korea's exports to the US are subject to the tariff, which is significantly higher than the EM Asia average of 11%. Korea also has a greater exposure to the Section 232 tariff on steel and aluminum compared to the peers in Asia. Although the US White House has yet to release Factsheets, news reports from the Korean media indicate that the tariff on automobiles has been reduced to 15% and the previous trade agreement with the EU has maintained the steel and aluminum tariff at 50%. Our estimate of 14.7% effective rate takes into account a 15% tariff on automobiles, a 50% tariff on steel and aluminum, and the continued effectiveness of current exemptions for Annex II and electronic and tech products.Many significant details to watch for ahead on tariff front...Where the framework of the trade deal is set, there are still many details to watch for ahead. On the tariff front, the detailed treatment to the sectoral auto tariff would be critical in determining the effective tariff rate; similarly, the treatment to steel aluminum and the exemption list. In the worst combination, the effect rate could increase to 21.7% (Figure 6). On the other hand, whether the announced tariff rate w