By Abhishek Sharma

On 7 July 2025, the United States (US) President Donald Trump sent an official letter to the South Korean President, Lee Jae Myung, declaring his intention to impose 25 percent tariffs on all Korean products entering the US market. The letter’s release caused significant unease for President Lee Jae Myung, who faced a serious challenge on the trade front in the second month since assuming office. Given the trade challenge, the Lee administration aims to secure a deal with the Trump administration before the deadline—1 August 2025.

Unlike the previous progressive Moon Jae-in administration’s negotiation strategy, this administration has opted for a different route. The approach is based on securing a ‘positive-sum’ deal along with a package that seeks to secure South Korea’s security interests. However, considering the Trump administration’s unpredictability and arbitrariness, uncertainty looms over the success/outcome of said package deal, posing a serious challenge for the US-Korea strategic alliance.

Korea’s Hedging Strategy: Moving from a Zero-Sum to a Positive-Sum Deal

Since the announcement of the 1 August 2025 deadline, the Lee administration has been vigorously attempting to fast-track the negotiations, sending its top diplomat to the US to seal a deal. The administration fears that in addition to the 25 percent tariffs, an additional 25 percent and 50 percent tariffs on automobiles, steel, and aluminium, as well as the semiconductor sector (although the rates have not been announced for this), will worsen South Korea’s economic situation.

This is especially crucial considering these sectors make up the top three exports from Korea to the US. It is estimated that if tariffs persist, Korean exports will decline by 7.1 percent, 7.2 percent, 6.5 percent, and 3.8 percent respectively in automobiles, steel, automotive parts, and machinery during the July to December period. This means the impact on the economy will be significant, considering that in 2024 Korea exported US$127.8 billion to the US. Hence, to resolve the trade issue, Korea has adopted a pragmatic approach to address the ongoing uncertainties prompted because of the tariffs, which seriously harm its exports.

Through the negotiations, South Korea aims to secure a landing zone and sort out significant points of agreement, much like the US did with the United Kingdom (UK) and Vietnam before the deadline, and continue detailed negotiations later. For Seoul, the detailed negotiations pertain to the three sectors: steel, aluminium, and automotive. Furthermore, Seoul has also proposed a ‘manufacturing renaissance partnership’ to address these sectors, promising more US procurement and strengthening corporate investments.

In addition to the trade deal, Korea will also look at opportunities for more defence and energy purchases from the US and greater investment in projects such as the Alaska liquefied natural gas project. Irrespective of convergences, some sectors have stood out, including agriculture, which has become a sensitive dispute between the two. Concerning this challenge, Yeo Han-koo—South Korean trade minister—iterated his concerns, emphasising that while trade barriers can be addressed on some issues, the US must respect sensitivity on domestic problems [agriculture].

On the other hand, in the face of the increasing US trade restrictions, domestic traders have advocated for a strategic trade policy to maximise national interests, strengthen competitiveness, expand and upgrade Free Trade Agreements (FTAs), and diversify export items and markets. This emphasises a depleting trust towards the US and its impact on the industry’s perception. Beyond trade tensions, Seoul is also grappling with the challenge of maintaining a robust security alliance, especially taking into account the recent controversial statements by Trump and his cabinet officials.

Looming Security Issues: 5 Percent Rule, SMA, and OPCON

Another contention many US allies—including South Korea—experience is the replication of the  NATO model, a ‘5 percent Gross Domestic Product (GDP) standard’, in the Indo-Pacific, which implies earmarking 5 percent of the GDP on defence expenditure. The US Secretary of Defence, Pete Hegseth, reiterated the Trump administration’s position at the Shangri-La Dialogue, imploring Indo-Pacific allies to increase their defence spending. However, much like other US allies such as Japan, Korea has also pushed back and expressed its disagreement. In a press release, South Korea’s Ministry of Foreign Affairs stated, ‘[w]e seek to make our own decisions on defense spending based on a comprehensive assessment of the security situation and the government’s fiscal circumstances.’   

Furthermore, old issues are again taking centre stage under the Trump administration. Speaking on the special measures agreement (SMA) issue, the Chargé d’Affairs at the US Embassy in Seoul said there ‘needs to be discussion about how to share expenses beyond those three categories [construction costs, logistical support, and labor expenses], and whether Korea is spending enough on defense.’ The message signals to Seoul that tensions between the two countries will reach a high when the agreement is re-negotiated in 2026.

With China’s rising threat profile, the issue of reducing the number of US Forces Korea (USFK) soldiers deployed in South Korea and the transfer of Wartime Operational Control (OPCON) is expected to further strain the security ties between the two, in light of their dissenting approaches. This is because with US Forces becoming more structured in the Indo-Pacific region, the focus of USFK will shift from North Korea to Taiwan and the Philippines, leading to a substantial decrease in its numbers. Additionally, the OPCON transfer will result in a systematic downgrade of the US military leadership in the peninsula. These issues will place South Korea at a lower priority in the US strategic calculus. Hence, the security issues regarding the SMA, 5 percent rule, and OPCON are expected to reignite the tension between the alliance, much like the last Trump-Moon administration.

Be Pragmatic, Not Shortsighted

South Korea has proposed a package deal to the US to escape the problematic situation, combining economic and security issues. Wi Sung-lac—South Korea’s National Security Advisor—during his visit to the US, proposed expanding the scope of negotiations and discussions with the US. Talking about the issue, Wi said that ‘[w]e raised a range of issues spanning trade, investment, procurement and security, and suggested moving forward with negotiations by taking this comprehensive package into account.’

The package deal approach adopted by the Lee administration aims to stabilise Korea’s bilateral ties with the US, even considering the recurring security and SMA’s defence issues, and the US Force Posture under the Trump administration. The Korean administration’s tactical objective is to reduce the US$55.6 billion trade surplus with the US by forfeiting even critical sectors such as agriculture. Nevertheless, there are no short or long-term guarantees that the US will reciprocate through concrete economic and security returns. Seoul is likely to end up with a lopsided deal, instead of a mutually beneficial one. Therefore, a short-sighted strategy (focused on bartering short-term stability with long-term uncertainty) will likely backfire considering the Trump administration’s growing irrational economic and security demands to its allies.

Instead of yielding to Trump’s demands for short-term gains and looking at securing an odd deal, South Korea should leverage its position as the leader in critical sectors such as shipbuilding, battery technology, semiconductor, and a reliable defence exporter, offering Trump a deal to build the US’s industrial capacity in these sectors. This will not only consolidate Korea’s position as a dependable ally, dismantling the Trump administration’s rhetoric of a ‘free-rider ally’, but also showcase the strategic benefit of having a strong defence partnership with Korea in the Indo-Pacific. While this approach may require extra effort and time, it will be a win-win deal that will sustain itself in the long run.

About the author: Abhishek Sharma is a Research Assistant with the Strategic Studies Programme at the Observer Research Foundation.

Source: This article was published by the Observer Research Foundation.