The difficulty of cooperative shipbuilding is "incomparable," massive investments exacerbate industrial hollowing, and the Korea-U.S. tariff agreement triggers new anxieties in South Korea

The trade agreement reached between South Korea and the United States last week has not reassured South Korea, sparking a new round of anxiety domestically regarding the future implementation, impact, and potential changes of the agreement. According to a report by Reuters on the 4th, South Korea's Minister of Trade, Industry and Energy, Jin Jeong-gwan, stated on Monday that the agreement with the U.S. avoided the worst-case scenario, but there are still concerns about how the 15% tariff rate will affect exporters' profitability. Additionally, South Korean media reported on the 3rd that the South Korean shipbuilding industry has established a task force to promote the South Korea-U.S. shipbuilding cooperation project "MASGA" (Make American Shipbuilding Great Again), but the difficulties have sparked discussions. In recent days, South Korean officials have frequently commented on the details of the South Korea-U.S. tariffs, some of which contradict what the U.S. has stated. The South Korean newspaper Chosun Ilbo reported on the 4th that ahead of the upcoming South Korea-U.S. summit, there are still differences between the two sides on agricultural issues and the $350 billion investment. The Korea Times also stated that although the tariff agreement provides a framework, there are still many issues that need to be resolved before the summit.

Challenges Facing Cooperative Shipbuilding

The three major players in South Korea's shipbuilding industry—HD Korea Shipbuilding & Marine Engineering, Hanwha Ocean, and Samsung Heavy Industries—along with the Korea Shipbuilding & Marine Equipment Association, recently launched a task force to advance the South Korea-U.S. shipbuilding project. According to Yonhap News Agency, the task force is expected to formally discuss the "MASGA" project in early or mid this month. Industry insiders indicate that there are many implementation plans for South Korea-U.S. shipbuilding cooperation, which is why the task force was established to support and assist in the project's execution.

The recent economic and trade agreement between South Korea and the U.S. includes the "MASGA" project, which has a scale of up to $150 billion. The Chosun Ilbo reported on the 4th that this project will become an unprecedented overseas expansion endeavor for South Korea's manufacturing industry. The report stated that the "MASGA" project is "incomparably" difficult, requiring the construction or upgrading of local shipyards in the U.S., talent cultivation, and even the transplantation of equipment supply chains, "which is equivalent to doing everything from A to Z."

The project faces multiple obstacles to success. The JoongAng Ilbo reported on the 4th that industry insiders believe that addressing the issue of acquiring skilled labor in the U.S. has become an urgent priority. The report mentioned that since the industrial decline after World War II, the U.S. has struggled to stabilize the cultivation of specialized talent for shipyards. The South Korean industry is calling for a mixed production strategy, such as manufacturing hull sections in South Korea and completing final assembly in the U.S. However, this model is restricted by several U.S. laws, such as the Jones Act, which stipulates that domestic maritime trade in the U.S. can only use vessels that are built, owned, and crewed by Americans.

Concerns Over Competitiveness

Regarding the impact of the "MASGA" project on South Korea, the JoongAng Ilbo published an editorial after the South Korea-U.S. agreement, mentioning that this could lead to the transfer of South Korea's high-end technical talent and production capacity to the U.S. during the investment process. The article referred to this as a hidden concern regarding industrial competitiveness.

On Monday, Jin Jeong-gwan expressed concerns about the impact of the tariff agreement, mentioning that the unprecedented 15% tariff could significantly affect the profitability of South Korean companies exporting to the U.S., especially small and medium-sized enterprises, compared to local American companies. He stated that South Korea's position after reaching an agreement with the U.S. could be likened to a patient who has just undergone surgery, still facing the risk of recurrence or needing medication The Central Daily also mentioned that there are still concerns about competitiveness in the automotive industry. South Korean automobiles originally enjoyed zero tariff treatment under the Korea-U.S. Free Trade Agreement, but will now be subject to a 15% tariff along with Japanese automobiles (original tax rate 2.5%). Kim Yong-bum, head of the policy office at the South Korean presidential office, expressed his "heartache" about this on the 3rd. Kim stated that this means the Korea-U.S. Free Trade Agreement has effectively become a "semi-finished product," and he believes that setting the tariff on South Korean exports of automobiles to the U.S. at 12.5% would be more reasonable.

More concerns revolve around the $150 billion investment in shipbuilding outside of the $200 billion investment. There are still differences between South Korea and the U.S. regarding control over investment funds and the distribution of investment returns. Kim Jong-kwan stated that the government will continue to discuss the specific details of the investment plan with the U.S. to benefit the South Korean economy and enterprises.

The Central Daily believes that investment in the U.S. may exacerbate the hollowing out of South Korea's domestic industry. At the same time, the $350 billion investment amount is too large, and to absorb this shock, the government must support policies to boost corporate vitality.

Facing "Additional Concession Pressure"

After the trade agreement was reached, the recent Korea-U.S. summit has attracted attention from South Korean media. Although the topics and agenda have not yet been determined, many media outlets have stated that the unresolved economic issues in the agreement will be important topics.

The Korea Times reported on the 3rd that the Korea-U.S. summit may intensify U.S. pressure on South Korea regarding non-tariff barriers. The report mentioned that South Korean officials warned that the current trade agreement only outlines a broad framework rather than a final solution. Key issues—especially non-tariff barriers affecting agricultural products, digital services, and other areas—remain vaguely stated and unresolved. The Korea Times cited experts' warnings that the U.S. government is likely to pressure South Korea for further concessions in these areas, including controversial topics such as online platform regulation and sensitive technology export controls.

According to an analysis by the Chosun Ilbo, Trump stated that South Korean President Lee Jae-myung will visit the White House "within two weeks" and announce "huge investments" at the summit. Observers expect the two leaders to directly discuss the details of the investment fund. Some within the ruling camp in South Korea believe that it would be ideal if Lee Jae-myung could secure some reduction in U.S. automobile tariffs, but others warn that South Korea may face additional concession pressures similar to Japan's large-scale procurement of Boeing aircraft.

The Central Daily commented that while tariff negotiations have temporarily "passed," the real test is just beginning. The article argues that the trade agreement must ensure South Korea's substantial interests during the implementation phase. Additionally, there is an urgent need for policy adjustments to activate corporate vitality and minimize the side effects of tariffs.

This article is sourced from: Global Times, author: Mang Jiuchen, original title: "The Difficulty of Collaborative Shipbuilding is 'Uncomparable', Huge Investments Exacerbate Industrial Hollowing, Korea-U.S. Tariff Agreement Triggers New Anxiety in South Korea"