South Korea Faces Additional Tariffs on Pharmaceuticals as Negotiations Stall Over $350 Billion Investment Fund.

Shortly after the conclusion of the South Korea-U.S. tariff negotiations in late July, President Lee Jae-myung assessed that the talks had produced a mutually beneficial outcome, stating, “We have overcome a major hurdle.” At the time, government officials explained that even without a written agreement, the verbal agreement was sufficiently robust. However, it later emerged that the memorandum of understanding (MOU) sent by the U.S. included a “cash financing” clause that diverged from South Korea’s initial understanding, revealing a gap between the initial assessment and reality. On the 25th of last month, President Lee Jae-myung and Kim Yong-beom, the policy chief of the presidential office, stated that the U.S. demands required conditions that could be managed, namely “commercial rationality.”

Beyond remaining inflexible to South Korea’s demands, the U.S. is intensifying pressure. On the 25th (local time), President Donald Trump mentioned both Japan and South Korea, referring to the $350 billion discussed in negotiations with South Korea and Japan’s $550 billion as “money we are receiving and a down payment.” This is interpreted as a reiteration of the demand for South Korea to sign an MOU, similar to Japan, to finance most of the investment fund in cash during Trump’s term to reduce auto and parts tariffs to 15% as agreed in late July. This clearly reveals the perception that this amount is the price for the promised tariff reduction.

The Wall Street Journal reported that U.S. Commerce Secretary Howard Lutnick is also strongly demanding a “similar agreement to Japan’s” from South Korea and pressuring to increase the scale beyond the initially agreed $350 billion. According to the report, Lutnick conveyed to South Korea the request to finance most of the investment funds in cash, and South Korea expressed dissatisfaction, stating, “The White House is moving the goalposts,” indicating that follow-up negotiations between the two countries are faltering. The differences between the two sides appear to be widening.

◇ U.S. also employs strong-arm pressure tactics

The South Korean government stated that it has not received any requests to increase the investment scale regarding the report. However, it did not deny that follow-up negotiations are being prolonged because the U.S. is not responding to requests to revise the MOU text. The South Korean government has been persuading Lutnick, Jamieson Greer of the U.S. Trade Representative (USTR), and others in meetings that “South Korea and Japan have different fundamental economic capacities.” However, the WSJ pointed out, “The Trump administration needs to reach a trade agreement with South Korea as desired to gain momentum for concluding negotiations with other countries.” If it appears that South Korea is making concessions, other countries dissatisfied with the U.S.’s excessive demands could also withdraw from negotiations.

The South Korean government plans to continue negotiations with the goal of concluding them by the time of the Asia-Pacific Economic Cooperation (APEC) summit, which President Trump is scheduled to attend in South Korea. Professor Heo Yoon of Sogang University’s Graduate School of International Studies stated, “The sparks from trade negotiations with the U.S. could spread to other areas such as security,” adding, “We must review cards to shift the atmosphere while holding onto the negotiations as much as possible.”

◇ Expansion of tariff front to include pharmaceuticals and others

Meanwhile, President Trump announced on his social media Truth Social the imposition of additional tariffs on various items. The items he announced would be subject to new tariffs starting from the 1st of next month include pharmaceuticals (100%), medium and large trucks (25%), kitchen storage units and bathroom sinks (50%), and finished furniture (30%). Among these, South Korea’s exports of pharmaceuticals to the U.S. last year amounted to $3.97 billion (approximately 5.6 trillion Korean won).

South Korea is burdened with high auto tariffs (25%) due to the delayed negotiations, while Japan and the European Union (EU) are subject to 15%. In this situation, South Korea now has to worry about additional tariffs on pharmaceuticals and other items as warned by President Trump. The South Korean government had verbally agreed in the late July tariff negotiations to secure most-favored-nation treatment for pharmaceuticals and semiconductors. This means South Korea was promised the same benefits as the countries subject to the lowest U.S. tariffs. However, as follow-up negotiations on the $350 billion investment have been prolonged, this has not been formalized. Japan has already reached an agreement with the U.S. on securing most-favored-nation treatment for pharmaceutical and semiconductor tariffs and has formalized it.

There are also concerns that the U.S. tariff front could further expand to include semiconductors and critical minerals. This is because the U.S. Department of Commerce has begun reviewing tariffs on these items around the same time as pharmaceuticals. The WSJ reported, “The U.S. administration is considering a plan to mandate a 1:1 ratio of imported to domestically produced semiconductors and impose tariffs if this is violated.”

Source: The Chosun Daily

• USTR Makes Findings and Proposes Action in 60 Section 301 Investigations Relating to Failures to Take Action on Trade in Forced Labor Goods
• [VCCI] The US officially initiates a Section 301 Investigation into Vietnam on Intellectual property
• General Secretary and President To Lam's working visit to three ASEAN countries: Demonstrating the stature of proactive and constructive diplomacy.
• Viet Nam accelerates innovation drive as skilled workforce becomes key to science and technology growth
• The US is increasing controls on AI chip exports