(Not So) Fun Fact: President Trump has issued a total of 49 tariff threats since he was elected in November 2024, but just 10 have been fully implemented.

Shots Fired at the U.S.-South Korea Trade Deal

What’s Happening: On Monday, President Trump announced that tariffs on South Korea would increase from 15 to 25 percent, reversing the U.S.-South Korea trade deal agreed upon last year. The president’s stated reason for this move is that the South Korean National Assembly has not yet ratified the bilateral $350-billion investment and trade agreement. South Korean officials said that the United States provided no warning of the tariff hike and that the deal does not require action by the legislature since the countries signed a memorandum rather than a treaty. The Korean trade and industry minister is expected to meet with Commerce Secretary Howard Lutnick this week after visiting counterparts in Canada. A spokesperson for the South Korean National Assembly also noted that there are currently five separate bills scheduled for deliberation relating to the investment initiatives covered by the trade deal.

Why It Matters: Raising the tariff rate back to 25 percent would increase annualized tariff costs by an estimated $6 billion according to the Shipment’s calculations. If re-imposed, the automobile, lumber, pharmaceutical, and “Liberation Day” tariffs will be affected while the semiconductor tariff may be left alone. Perhaps more important, President Trump’s announcement risks jeopardizing the South Korea deal and throws significant doubt on the reliability of all current and future U.S. trade deals. Last week’s Greenland tariff debacle also cast doubt on the stability of the trade agreement with the European Union (EU) since the European parliament suspended work on implementation. Even after that tariff threat was called off, the parliament remains divided on whether the EU should resume its work. These two events serve as a friendly reminder that implementing legitimate trade agreements is a process that takes time to work out, especially when parts of the deal require the approval of the legislative branch. This is something that the Trump Administration has yet to contend with in the United States as each negotiated trade deal has solely involved the executive branch with little to no congressional involvement.

On the part of the South Koreans, the five bills currently in the National Assembly have been proposed by both the ruling and opposition party, meaning potentially 269 out of the 300 seats may vote in favor. It appears that its legislature may fast-track passing a special act on the U.S. trade deal by the end of February that will establish a state-run corporation to manage the $350 billion investment. Given that South Korea was on its way to formalizing the agreement, the president’s tariff threat may indicate that the administration wants to fast-track deals before the Supreme Court rules on the International Emergency Economic Powers Act (IEEPA) tariffs. If the Court rules against IEEPA, it may send a signal to trade partners that the bulk of U.S. tariffs are no longer on the table as leverage for implementing potentially unfavorable deals. At the same time, this may be a favorable read of this trade deal debacle as the administration has emphasized many times it will reintroduce its tariff regime through other means.

Looking Ahead: As of now, it is unclear if the Trump Administration will raise tariffs before South Korea passes the bill in February, or if it was simply a threat to spur faster action. Treasury Secretary Bessent noted Wednesday that the president’s statement would be helpful to move things along, which could mean tariffs will not be formally raised. If this year’s track record of Greenland and Iran tariffs is any indication, expect another empty threat.

The EU and India Sign a Free Trade Agreement

What’s Happening: This week, the EU and India finalized a comprehensive free trade agreement (FTA) that eliminates or reduces tariffs on nearly 97 percent EU exports and provides preferential market access for 99 percent of Indian exports. Additionally, the EU and India signed a Security and Defense Partnership to expand cooperation on maritime security, counterterrorism, and cyber-defense. These agreements will integrate two of the largest economies in the world and expand strategic collaboration in a shifting geopolitical environment.

Why It Matters: After nearly 20 years of on-and-off discussions, the EU-India trade agreement is one of the largest FTAs in history and marks a historic opening of the Indian market. For decades India has maintained relatively high tariffs for an economy of its size, with various regulatory hurdles making market access cumbersome for many foreign companies. Under this agreement, European exporters are expected to save close to $5 billion in lower tariff costs annually, while consumers in both markets will also see billions in tariff savings and more options for products. This agreement also establishes a comprehensive mobility framework for Indian workers that will allow easier movement of professionals from India into the EU (see charts below).

This FTA stands in stark contrast to all the recent U.S. trade deals and frameworks as this formally establishes greater market access, dramatically reduces trade barriers, and promotes economic cooperation rather than central planning. The U.S.-EU deal announced last year on the other hand maintains an elevated 15-percent tariff on most EU goods, a 50-percent tariff on steel, aluminum, and copper; includes vague language regarding market access for certain agricultural products; and targets investment and energy purchase commitments that are difficult to enforce. The U.S. deal came after just months of negotiations that stemmed from a drastic trade war escalation while the EU-India deal is the culmination of years of negotiations from hundreds if not thousands of stakeholders. It should be a wake-up call for the Trump trade team that U.S. trade partners are continuing to work together to diversify away from the U.S. market. This deal is a key sign that globalization and the economic benefits of trade are not dead and will continue with or without the United States.

Looking Ahead: The EU-India FTA will take up to 10 years to take full effect as many of the tariff reduction and market access improvements are phased in over time. The deal also requires ratification by the EU. Over the coming years, it is likely that this deal will have economic consequences for the United States as both India and European countries receive preferential treatment in each respective market compared to U.S. companies. Meanwhile, U.S. companies will continue to pay higher tariffs for any imported inputs and rely on protectionist barriers as an economic crutch rather than innovation or competition within the U.S. market. It is possible that the Trump Administration sees this deal and tries to speed along a trade deal of their own. The trade team has been promising that a deal with India is right around the corner for months, ever since the first trade deal with the United Kingdom was announced.

Free Trade Agreement Benefits for the European Union

Source: European Commission Fact Sheet

EU-India Free Trade Agreement: Impacted Export Value

Source: India Ministry of Commerce Fact Sheet