The United States and South Korea have completed a major trade agreement. South Korea will invest $350 billion into U.S. projects chosen by the President. Additionally, South Korea will purchase $100 billion worth of LNG and other energy products from the U.S. More details about this investment will be shared in two weeks during a White House meeting with President Lee Jae Myung.

Trade Details and Tariffs

South Korea will fully open its markets to American products, including cars, agricultural goods, and trucks. A 15% tariff will be applied to South Korean products coming into the U.S., while American goods will enter South Korea without tariffs. President Trump announced this news on his social media account. Given the timing, we can expect an immediate response in currency markets. The South Korean Won is likely to weaken significantly against the U.S. dollar. With the USD/KRW exchange rate around 1,390 recently, we should consider taking long positions on the dollar, aiming for a rise above 1,450. We also expect a drop in the South Korean stock market, especially the KOSPI index. Traders dealing in derivatives should consider buying put options on ETFs like the iShares MSCI South Korea ETF (EWY), which has had moderate gains this year. This agreement will particularly impact South Korean car manufacturers like Hyundai and Kia, which sold 1.6 million vehicles in the U.S. in 2024. A 15% tariff would hurt their competitiveness.

Impact on Energy and Automotive Sectors

The $100 billion commitment to U.S. energy is a big boost for our LNG exporters. U.S. LNG export capacity has already exceeded 14 billion cubic feet per day this year. This deal promises a long-term rise in demand. We should buy call options on leading companies like Cheniere Energy (LNG) and other natural gas producers that will benefit. With South Korea opening its markets completely, U.S. automakers and agricultural companies are likely to gain. Eliminating tariffs on American goods makes them more competitive with local Korean products. We should expect their stock prices to rise and consider call options on companies like Ford (F) and agricultural ETFs such as the Invesco DB Agriculture Fund (DBA). The $350 billion investment fund introduces some uncertainty since the specific companies haven’t been disclosed. This ambiguity, along with the upcoming announcement in two weeks, may increase market volatility. Traders might look at buying short-dated VIX call options to protect against or profit from potential spikes in the CBOE Volatility Index. We’ve experienced something similar during the 2018 renegotiation of the KORUS agreement, which saw threats of automotive tariffs causing significant fluctuations in related stocks. This new deal is more dramatic, suggesting the market reaction will be even stronger than before. Create your live VT Markets account and start trading now.

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