Seoul: South Korea's recent tariff agreement with the United States, which aligns with those obtained by other major trading partners, is anticipated to offer immediate relief. However, experts caution that the country must prepare for the repercussions of shifting trade norms on critical sectors and the broader economy.

According to Yonhap News Agency, the bilateral trade agreement, announced earlier today, establishes a 15 percent tariff on South Korean exports to the U.S., significantly lower than the initially anticipated 25 percent. The deal also includes a commitment of US$350 billion in South Korean investment in various U.S. sectors, such as shipbuilding and energy.

The agreement reduces tariffs on automobiles from the current 25 percent to 15 percent and allows South Korea to avoid additional U.S. market access demands in sensitive areas like beef and rice. This new arrangement will be effective starting Friday (U.S. time).

President Lee Jae Myung expressed optimism, stating in a Facebook post, "We have overcome a significant hurdle. The agreement eliminates uncertainty in our export environment and creates conditions to compete on equal or better terms with major countries."

Earlier this week, the U.S. reached similar agreements with Japan and the European Union, establishing 15 percent tariffs. The export structures of Japan and the EU to the U.S. closely resemble that of South Korea.

Despite the relief, experts predict that the new tariff scheme may further dampen South Korea's exports to the U.S. and other countries in the short term. In the first half of this year, South Korean exports to the U.S. dropped 3.7 percent year-on-year to $62.18 billion, with car exports falling 16.8 percent and machinery sales dipping 16.9 percent.

Industry ministry official Seo Ga-ram noted, "Exports to the U.S. have continued to decline, particularly in automobiles and steel, both subject to item-specific tariffs. Our trade surplus with the U.S. is also shrinking."

South Korea's overall exports decreased by 0.03 percent from a year earlier in the first half of 2025, totaling $334.7 billion, marking the third-highest level of exports in any first half after 2022 and 2024. However, officials attribute the better-than-expected figure partly to front-loaded demand ahead of anticipated tariff increases.

Concerns persist about the potential slowdown in exports, which could further impact the domestic economy amid sluggish consumption. Bank of Korea (BOK) official Lee Dong-won stated, "Starting from the third quarter, the impact of U.S. tariffs is likely to become more pronounced. Economic growth may slow further under the 15 percent tariff scheme."

In the second quarter, South Korea's real GDP rose 0.6 percent, bouncing back from a 0.2 percent contraction in the first quarter. The BOK had assumed a base reciprocal tariff of 10 percent and item-specific tariffs of 25 percent on autos and steel products when revising this year's economic growth forecast to 0.8 percent in May. The BOK is scheduled to release its latest growth outlook next month.

Companies are assessing the impact of the new agreement amid growing concerns that trade advantages under the bilateral free trade agreement (FTA) with the U.S. may have been nullified, especially in the automotive sector. South Korean vehicles had previously entered the U.S. market tariff-free under the KORUS FTA, while Japanese and European vehicles faced a 2.5 percent tariff.

Kim Yong-beom, the presidential chief of staff for policy, remarked, "We pushed for 12.5 percent until the very end, but insisting on 12.5 percent would have destabilized other frameworks."

The KORUS FTA, effective since 2012, has increased bilateral goods trade by 68 percent, with South Korean investment in the U.S. tripling and U.S. investment in South Korea doubling, according to Seoul government data. However, former President Trump cited the bilateral FTA as an example of unfair trade.

Jung Cheol, chief of the Korea Economic Research Institute, commented, "It is unfortunate that the U.S. did not take the existing FTA into consideration. But detailed working-level discussions on specific provisions are expected to continue, and the KORUS FTA remains a valuable channel for direct communication with the U.S."

Concerns remain regarding the possibility of expanded item-specific tariffs, with the U.S. pushing for levies on semiconductors and pharmaceuticals. Steel, a key South Korean export, is already subject to a 50 percent item-specific tariff.

Trade Minister Yeo Han-koo stated, "The overall U.S. trade environment appears to have fundamentally changed. The U.S. is expected to continue putting pressure not just on us but on other trading partners to remove non-tariff barriers. The latest agreement helped reduce uncertainty for domestic companies, but we cannot afford to be complacent. It is needed that we push for structural improvements, enhanced competitiveness, and diversification of export destinations."