Despite reaching an agreement with the Trump administration on trade in late July, economic issues were one of the key issues at the August 25 summit between South Korean President Lee Jae-myung and U.S. President Donald Trump. This is partially because the July agreement left some details to be finalized, but also because the United States has continued to expand the economic tools it is using to gain leverage over economic issues.
In the agreement reached in late July, Korean firms committed to invest an additional $350 billion in the United States. This is similar to the agreements with Japan and the EU that called for investments in the U.S. of $550 billion and $600 billion, respectively. South Korea also agreed to purchase $100 billion in U.S. energy products through the end of the Trump administration.
In exchange for Korean investment and energy purchases, the United States agreed to reduce its reciprocal tariffs on imports from South Korea to 15 percent, as well as lowering the Section 232 national security tariffs on automobiles, semiconductors, and pharmaceuticals to the same 15 percent rate. Should the tariffs on those Section 232 products come down for other countries, South Korea also secured a commitment that its producers would not be treated any worse than firms in other countries.
The tariff rates Seoul agreed to are higher than under the Korea-U.S. Free Trade Agreement (KORUS FTA), but they critically ensure that Korea firms are not at a tariff disadvantage to their primary industrial competitors in Japan and the EU.
In framing his appeal to Trump on economic issues, Lee said that “Korea was able to obtain economic growth and development through our ironclad alliance, and going forward, I hope to develop it into a future-oriented alliance that encompasses areas not only limited to security but also the economy, science and technology.”
Speaking in remarks before the press at the beginning of their summit meeting, Lee went on to say, “I believe that there is a renaissance taking place not just in the shipbuilding sector but also in the manufacturing industry, and I hope that Korea can be a part of that.”
Lee’s desire builds on the efforts of recent administrations in both South Korea and the United States. In fact, in recent years, South Korea has been among the leading investors in the United States, investing in automotive production, EV batteries, semiconductors, and solar panels. The summit meeting provided an opportunity to begin fleshing some of these details out, with the United States and South Korea reaching a non-binding agreement on how the $350 billion fund will be managed and Korean firms pledging $150 billion in investment, signing 11 MOUs.
South Korea’s strengths in shipbuilding have thus far been the most important aspect of its investment package, something Trump highlighted in his own remarks. Commercial and naval shipbuilding in the United States has fallen well behind global leaders and requires significant investment. In its current state, the U.S. commercial shipbuilding sector produces on average five ships or less a year, or less than 0.1 percent of all commercial ships produced in the world by tonnage. China, in contrast, accounts for 53.3 percent of global shipbuilding by tonnage.
U.S. naval shipbuilding only fares slightly better. Production is suffering from growing delays, capacity issues, and worker shortages. All of this is at a time when China has surpassed the U.S. Navy in total ships and can produce new ships at a faster rate.
South Korea is an ideal partner for reinvigorating the U.S. shipbuilding industry. It is the world’s second largest producer of commercial vessels by tonnage and is already investing in the U.S. shipbuilding industry. Last year, the Hanwha Group purchased the Philly Shipyard and is investing in upgrading its capabilities, including for the production of the first LNG carrier produced in the United States. Lee himself toured Philly Shipyard on August 26, a clear sign of the importance of this area of cooperation. Hanwha has also secured contracts for maintenance, repair, and overhaul (MRO) of U.S. naval vessels.
HD Hyundai Heavy Industries has also become more involved in the U.S. shipbuilding industry, forming partnerships with commercial and naval shipbuilders in the United States. It is collaborating with Edison Chouest Offshore to build small-to-medium sized LNG ships in Tampa, while also exploring cooperation with HII on commercial and naval ship construction. Similar to Hanwha, HD Hyundai Heavy Industries has also secured an MRO contract.
As part of its $350 billion in potential investments, South Korea proposed a $150 billion investment through its Make America’s Shipbuilding Great Again (MASGA) initiative to address the severe decline in U.S. shipbuilding. The plan calls for the investment in new shipyards in the United States, rebuilding supply chains, expanded MRO cooperation, and workforce training.
Korean shipbuilders have already launched a joint taskforce to support the government’s MASGA proposal. This stands in contrasts with the reluctance of Japanese shipbuilders to invest in the United States. Additionally, after the summit, HD Hyundai signed an MOU with the Korea Development Bank and Cerberus Capital to acquire U.S. shipyards, improve supply chains, and upgrade facilities with AI and autonomous technologies. Samsung Heavy Industries Co. also signed a strategic partnership with Vigor Marine Group in the U.S. to provide MRO for U.S. naval support ships.
The most intriguing development from the summit, however, came from Trump. During his opening remarks, he said that the United States was “going to be buying ships from South Korea,” adding, “We love their ships.”
The purchase of Korean ships would allow the United States to compete with China’s growing fleet. The United States and Korea did not announce how they intend to proceed with the purchase of Korean ships. For the U.S. Navy, purchasing ships from South Korea would have to overcome the hurdle of the Byrnes-Tollefson Amendment. The amendment currently prohibits the construction of naval vessels in foreign shipyards, limiting South Korea’s role in the construction of U.S. Navy vessels. Trump could waive the Byrnes-Tollefson Amendment on national security grounds.
Alternatively, Trump could support legislation in Congress such as the Ensuring Naval Readiness Act. The act would allow for naval vessels to be built by in a foreign shipyard either in NATO or an Indo-Pacific country that has a mutual defense treaty with the United States as long as the costs are lower than construction domestically.
Similar to shipbuilding, Korean firms can play a critical role in restoring semiconductor production to the United States. South Korea is already an important part of the semiconductor supply chains in the United States. Samsung and SK Hynix, along with the U.S. firm Micron, are the dominant producers of memory chips, and Samsung already has a fab in Austin, Texas.
South Korea has also played an important role in the growth of AI chips by Nvidia. SK Hynix pioneered high bandwidth (HBM) memory chips. AI requires a rapid transfer of data from memory to its processing core; HBM facilitates this transfer and enhances the productivity of Nvidia’s AI chips. SK Hynix remains the lead provider of HBM and currently accounts for 62 percent of the market.
Both Samsung and SK Hynix are investing more in the United States. Samsung is building a new $37 billion fab in Taylor, Texas as part of a larger complex for semiconductor production in the American state and announced that it would expand its facility in Taylor, TX. SK Hynix’s current investment in the United States is smaller. It is building an advanced packaging facility for HBM and an R&D facility in Indiana for $3.87 billion and confirmed its continued commitment to that investment at the summit.
Restoring semiconductor production to the United States is a top policy objective, but the investments in packaging by Samsung and SK Hynix fill a critical supply chain hole. The U.S. only accounts for 3 percent of world’s packaging capacity.
Ideally, the summit would have brought some clarity on recent U.S. policy developments. These include the decision by the Trump administration to issue export licenses for Nvidia and AMD to export certain restricted AI chips to China for 15 percent of their revenue from those sales, and suggestions that the Trump administration may try to convert loans to Samsung under the CHIPS and Science Act to an equity investment. Assurances that the sale of export licenses will not expand, as Treasury Secretary Scott Bessent has suggested they may, and that the equity stake the administration is considering in Intel is a one-off are important for creating stability in the economic relationship. These issues appear to have been left unfinished by the summit.
Addressing U.S. policy intentions is also important, as recent decisions by the Trump administration have negatively impacted recent Korean investments in the United States. New requirements that make the deployment of solar panels in the United States more difficult and that removed subsidies for the industry will have a negative impact on Hanwha Q Cells’ investments in solar panel production in the United States and its efforts to develop a solely sourced US supply chain for its production.
Lastly, nuclear power cooperation was a key issue. In a series of four MOUs signed during the Lee-Trump summit, Korea Hydro & Nuclear Power (KHNP) announced that it will partner with Doosan Enerbility Co., Amazon Web Services, and X-energy to develop small modular reactors to power AI data centers.
The Trump administration is committed to developing U.S. AI dominance, but also expanding nuclear power. Estimates suggest that AI could account for half of the growth in U.S. electricity demand by 2030. With significant new power needs, South Korean firms could assist in bridging this gap. South Korea is one of the world’s lower cost nuclear power producers and could help the U.S. lower costs in bringing new energy online.
Because a recent settlement by KHNP with Westinghouse over IP requires KHNP to purchase $650 million in parts and services for each nuclear reactor exported, the new agreements to build nuclear reactors in the United States would contribute to expanding manufacturing in the United States, account for part of South Korea’s commitment to purchase U.S. energy and invest domestically, while also enhancing a partnership between Westinghouse and KHNP that would become more competitive in third markets.
While issues related to defense spending and policy toward North Korea were on the agenda, including an expressed desire by both Lee and Trump to meet Kim Jong Un, economic issues played an important role in the summit. The Trump administration is focused on reorienting U.S. trade and restoring manufacturing to the United States. South Korea is set to be one of the key partners in that effort. The summit helped to advance some of the details in this new partnership and bring stability to the economic relationship.