South Korea has put forward an investment plan to the United States called “Make American Shipbuilding Great Again” (MASGA). This proposal comes as the August 1 tariff negotiation deadline approaches, and it aims to lower or eliminate the 25% tariff on South Korean goods. The plan includes significant investments from South Korean shipbuilders in the U.S. It offers financial support such as loans and guarantees, which will be facilitated by the Export-Import Bank of Korea.

Meeting Highlights

South Korea’s Industry Minister, Kim Jung-kwan, has presented this proposal to U.S. Commerce Secretary Howard Lutnick in New York. Lutnick reportedly responded positively to the offer. Finance Minister Koo Yun-cheol will visit Washington to meet with U.S. Treasury Secretary Scott Bessent. These talks are intended to finalize a trade agreement before the deadline. If a deal is not reached by August 1, the tariffs and specific duties will be reinstated. These tariffs were initially imposed on April 9 but have been paused for 90 days.

Potential Market Impact

The upcoming August 1 deadline serves as a strong motivator, making us hopeful that discussions between the two countries will lead to an agreement. Lutnick’s favorable reaction to the proposal suggests that tensions may ease, encouraging traders to adopt a risk-on attitude in affected sectors. We believe the best approach is to be bullish on South Korean shipbuilders, which secured a leading 45% of global orders in the first quarter of 2024. Avoiding the 25% tariff would remove a significant hurdle, making call options on top shipbuilders particularly appealing. The investment package also indicates government support, strengthening this optimistic outlook. The potential deal is crucial for the currency market as well. The South Korean won recently dropped to a 17-month low against the U.S. dollar. A finalized agreement would eliminate considerable economic uncertainty and likely spark a relief rally. We are exploring strategies that could benefit from a decrease in the USD/KRW exchange rate as the deadline approaches. For the U.S., the MASGA proposal suggests a substantial investment in its industrial capacity. This could boost domestic shipbuilding stocks and their supply chains, which haven’t seen much private investment for decades. Historically, resolving trade disputes, like the KORUS agreement renegotiations in 2018, has led to a notable drop in implied volatility. We expect that as Koo and Bessent’s discussions progress positively this week, volatility in related assets will decrease. Selling options on related indexes or stocks could therefore be a profitable move. Create your live VT Markets account and start trading now.

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