The United States will now apply a 15% tariff on imports from South Korea. This change helps avoid a possible increase to 25%, which was set to start on August 1. President Trump announced a complete trade agreement with South Korea.

South Korea’s Investment and Energy Purchases

South Korea will invest $350 billion in projects in the U.S., which President Trump will choose. The agreement also requires South Korea to buy $100 billion in U.S. energy products, including liquefied natural gas. With this deal, U.S. exports like vehicles and agricultural products can enter South Korea without tariffs. A meeting is planned, as South Korean President Lee Jae Myung will visit the White House to talk with President Trump in about two weeks. With the 25% tariff threat gone, we can expect a drop in volatility for assets related to this news. During the trade disputes in 2018-2019, the VIX index rose above 25 with tariff announcements. This time, we are avoiding that pattern. Traders might want to consider selling volatility on South Korean ETFs like EWY and the broader S&P 500.

Effects on South Korean and U.S. Markets

The 15% tariff is an added cost for South Korea, although it’s better than the previous alternative. We should be careful about a long-term rally for South Korean exporters, especially car manufacturers like Hyundai and Kia, which sent nearly 1.5 million vehicles to the U.S. in 2024. Strategies that limit potential gains, like selling call spreads on these companies, may be useful. The U.S. energy sector stands to gain from this agreement. South Korea’s promise to buy $100 billion in U.S. energy products is a big boost, especially since total U.S. LNG exports for 2024 were worth about $95 billion. We can expect positive movement in derivatives for major LNG exporters and energy ETFs like XLE soon. The $350 billion investment pledge into U.S. projects holds great long-term potential but creates short-term uncertainty. Since the projects will be directly chosen by the President, it’s unclear who the beneficiaries will be, making specific stock bets hard. Traders should keep an eye on industrial and materials sector ETFs for unusual options activity as more information comes out in the following months. Duty-free access to South Korea will help U.S. agricultural and auto exports. Last year, U.S. agricultural exports to South Korea were over $9 billion, and the removal of tariffs should increase demand for products like beef, corn, and soybeans. Consider call options on agricultural commodity ETFs to take advantage of this opportunity. In currency markets, the deal suggests a stronger U.S. dollar compared to the South Korean won. The combined $450 billion commitment for U.S. investments and energy will create high demand for dollars from South Korean entities. We can predict that the USD/KRW exchange rate, currently near 1,350, will rise, making long dollar positions against the won appealing. Create your live VT Markets account and start trading now.

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