Steel Tariff Exemption Negotiations Australia ‘Trade Deficit’ Japan ‘Gas Hub’ Korea ‘Investment in the US’
When Australia first entered into an agreement on the grounds of a ‘trade deficit’ in steel tariff exemption negotiations, Japan attempted to negotiate exemptions for steel and automobiles as a US gas supply hub in Asia, and Korea attempted to negotiate ‘steel exemptions’ based on ‘investment in the US’.
Australia created the first case of ‘exemption negotiations’ with a small amount of 1% of US steel imports, and Japan had its prime minister promise ‘large-scale purchases of US LNG’ at a White House summit on the 7th, and its trade minister began ‘steel and automobile exemption negotiations’.
On the 3rd, the day before the announcement of the 25% US tariff imposition scheduled to take effect on the 4th, Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum reached an agreement with President Trump in exchange for ‘30-day suspension and strengthened border control’, and President Trump announced this on the 3rd.
EU Trade Representative Maros Sefcovic said on the 4th, “We want early talks with the United States to prevent potential tariffs,” and added, “We are waiting for the confirmation of President Trump’s nominees for Secretary of Commerce Howard Lutnick and U.S. Trade Representative Jamieson Greer,” at the EU-Korea Ministerial Meeting.
The Trump side imposed a 10% tariff on China starting at 12:01 a.m. on the 4th, which was originally announced.
The Ministry of Foreign Affairs announced on the 21st that Vice Minister Park emphasized Korean companies’ investment in the U.S. and proposed holding a high-level meeting with the Trump administration to discuss further cooperation.
Reuters reported on the 21st that Vice Minister Park Jeong-won went to the U.S. and met with U.S. congressmen to request that incentives be maintained for Korean companies to do business in the U.S.
The Ministry of Trade, Industry and Energy said in a statement on the 21st, “Going forward, the government will continue to consult at a high level on U.S. trade and trade measures, and will respond to minimize damage to Korean companies through close communication with the industry,” and added, “During their visit to Washington this week, Korean officials requested an exemption from U.S. reciprocal, steel, and aluminum tariffs.”
Reuters reported on the 21st, “Acting President Choi Sang-mok said on the 14th that Korea has invested the most in the U.S. over the past two years, and that this will allow for tariff negotiations with the Trump administration,” and “Acting President Choi has instructed authorities to more actively contact the U.S. to seek cooperation and monitor the countermeasures being taken by other countries such as the European Union, Japan, and China,” revealing that Vice Minister Park’s visit to the U.S. was in accordance with the order.
Reuters reported on the 21st that “On the 14th, the South Korean Minister of Trade, Industry and Energy met with the acting U.S. ambassador to Korea and said that policies affecting trade and investment between the two countries should be maintained consistently and stably,” and that “A delegation of 20 Korean companies from the Chamber of Commerce also visited the U.S. this week and met with policymakers, including White House officials, and they expressed satisfaction with the meeting,” the chamber said in a statement.
On the 12th, Japan’s Minister of Trade, Industry and Energy Yoji Muto announced that Japan had asked the U.S. to exempt Japan from tariffs on steel and aluminum.
On the 10th, U.S. President Trump said that by drastically raising tariffs on steel and aluminum imports to 25% “without exceptions or exemptions,” he would support struggling industries in the U.S., saying that “there is a risk of triggering a multi-front trade war.”
The Asahi Shimbun reported on the 20th that Minister Yoji is planning to visit the United States in early March and seek exemptions from the Trump administration’s plan to set import tariffs on steel and automobiles.
Minister Muto is also arranging meetings with newly appointed U.S. Commerce Secretary Howard Lutnick, Energy Secretary Chris Wright, and other senior officials, and is discussing plans to purchase more U.S. natural gas and Nippon Steel’s natural gas, the Asahi Shimbun reported on the 20th.
Earlier on the 7th, Prime Minister Shigeru Ishiba held a press conference with U.S. President Trump at the White House after their summit, and the president said, “Japan will soon begin importing record amounts of U.S. liquefied natural gas.”
After his meeting with the Japanese prime minister, President Trump said at a White House press conference that “the two countries are pursuing joint ventures related to Alaskan oil and gas,” and “We will immediately begin selling LNG.” In particular, Japan is very pleased that they are starting immediately," he said.
Prime Minister Ishiba told a press conference through an interpreter, "Japan is also interested in importing bioethanol, ammonia and other resources at stable prices."
Prime Minister Muto is aiming to visit the United States by March 12, when the 25% tariff on U.S. steel and aluminum imports goes into effect, and the schedule of the visit is flexible depending on the budget session of the Japanese Diet, the Asahi Shimbun reported, citing multiple anonymous government sources.
Shortly after the announcement of the steel tariffs, President Trump said on the 11th that he would "greatly consider" Australia's request to exempt steel tariffs due to its trade deficit with the United States.
In a telephone conversation with Australian Prime Minister Anthony Albanese that day, President Trump agreed to review a plan to exempt Australia's steel and aluminum tariffs in consideration of Australia's trade surplus with the United States, Reuters reported.
President Trump announced on the 10th that while significantly raising tariffs on steel and aluminum imports, he would exempt major suppliers from tariffs and quotas for tariff-free imports. It rescinded the quota deal, restored a 25% tariff on millions of tons of steel and aluminum imports that had been imported into the United States duty-free under quota deals, exemptions and thousands of product exclusions.
The day after Trump’s announcement, Prime Minister Albanese told reporters in a phone call with the Australian prime minister that he had “made the case for Australia’s exemption first.”
After Trump told reporters that there would be no exemption, he noted that Australia is one of the few countries with which the United States has a trade surplus.
“We have a surplus in Australia. We’re one of the few countries that has a surplus,” Trump said. “And that’s because we buy a lot of airplanes. They are quite far away and require a lot of aircraft,” he told reporters.
“I told him we would very much consider it,” the Republican president told reporters in the Oval Office, adding that Albanese was “a very good man,” Reuters reported.
Australia, a key U.S. security ally where nuclear submarine construction began in the Indo-Pacific, is the world’s largest exporter of iron ore, a key steel raw material, but is a small steel exporter.
“Steel exports to the U.S. account for 1% of U.S. imports and 2% of aluminum imports,” the Australian prime minister told reporters.
Trump’s energy czar Doug Burgum said the talks “were setting the stage for a restructuring of Asia’s energy business as a way for Japan to replace Middle Eastern energy shipments and address the trade imbalance with the U.S.,” Reuters reported on the 21st, citing two people briefed on the private meeting.
Agreed at a luncheon between Trump and Japanese Prime Minister Ishiba on July 7 The content quickly shifted to discussions about how Japan could help realize a decades-old proposal to secure gas from Alaska and ship it to U.S. allies in Asia, Reuters reported.
Prime Minister Ishiba told Trump and Burgum that day that he hoped Japan would participate in the $44 billion project, and Trump repeatedly mentioned the project in public remarks after the lunch, but there was no mention of it in official documents from the summit, Reuters reported.
The idea of building an 800-mile pipeline linking gas fields on Alaska’s North Slope to export terminals on the Pacific Coast, creating a “gas kingdom” through Japan and South Korea to Southeast Asia, has long been delayed due to high costs and rough terrain, but it appears that Japan’s participation will kick off under the Trump administration.
Most U.S. LNG is transported from the Gulf of Mexico, which Trump himself renamed the U.S. Gulf, via the Panama Canal or through Africa to Japan and Asia via the Indian Ocean, and since there are no LNG export terminals on the U.S. West Coast, this project is an attempt to build a pipeline directly to Asia.
Mexico’s Costa Azul project, which receives U.S. gas, is expected to begin commercial operation next year, Reuters reported, adding that more than a third of the 119.8 billion cubic meters of LNG shipped by the U.S. last year were exported to Asia, according to LSEG data.
Japan imports about a tenth of its LNG from the U.S., which the Trump deal would increase to 20 percent.
Japan has maintained a similar share of its imports from Russia and the Middle East to the U.S., and is shifting its share to the U.S., while Australia imports about 40 percent from the U.S.
Alaska project developers are trying to attract investment from companies such as Tokyo-listed oil and gas exploration company Infex, and the Japanese government is the biggest stakeholder in the project, two sources told Reuters.
Indian Prime Minister Narendra Modi had earlier pledged similar U.S. gas supplies during a meeting with Trump at the White House.
“We want Japan, which already trades surplus gas, to become a key distribution hub for U.S. LNG,” Senator Bill Hagerty of Tennessee, who served as ambassador to Tokyo under the Trump administration, told Reuters.
“Even if the U.S. and China reach an agreement on some issues, there is a possibility that tariffs will be used repeatedly as a tool, which could be a major source of market volatility this year,” Gary Ng, senior economist at Natixis in Hong Kong, told Reuters of Trump’s tariff offensive.
Regarding Japan's long-term gas hub strategy, Reuters cited data from the International Gas Union and reported on August 16 last year that "Since 2019, Japanese companies have invested in new LNG import terminals in Bangladesh, Indonesia, and the Philippines with a total capacity of 16.2 million tons, and additional LNG import terminals with an annual capacity of 13 million tons will be built in Vietnam and India by 2030." "As of 2022, Japan's LNG sales to third countries (re-exports) have more than doubled from 2018 to 31.57 million tons," Reuters said.
The volume of transactions in which Japan resells imported LNG to third countries rather than for domestic consumption increased from 14.97 million tons in 2018 to 28.18 million tons in 2019, 33.94 million tons in 2020, 38.11 million tons in 2021, and 31.57 million tons in 2022. Japan, led by Tokyo Gas, Osaka Gas, and Kansai Electric Power, has invested in more than 30 gas-related projects in Taiwan, Bangladesh, India, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, and has established LNG resupply lines by acquiring shares.
After the Fukushima nuclear accident in 2011, the Japanese government transformed into the world's largest LNG importer by investing in overseas resource development through the Japan Organization for Energy, Metals, and Mineral Resources (JOGMEC) with an LNG terminal strategy, operating LNG terminals with an annual capacity of more than 200 million tons, and expanded the Trump administration's tariff offensive from "oversupply" to a "LNG Asia distribution hub" strategy, subordinating Korea.
Domestic conglomerates' new investment in the US has increased foreign currency debt by 1.58 trillion won in 2022, with 7 battery and petrochemical companies increasing their foreign currency debt by 1.58 trillion won in 2022 due to US subsidies and tax benefits.
The sharp increase in foreign currency debt was caused by LG Energy Solution, which reflected US subsidies in its accounting as advance profits and soared its stock price, with 3.4119 trillion won in 2021 and 4.2493 trillion won in the first six months of 2022, a sharp increase of 24.5%.
Samsung SDI's short-term foreign currency borrowings, which are expanding their US investments, increased by 15.7% from 835.7 billion won to 967.4 billion won in the first six months of 2022. LG Chem's foreign currency debt in the first half of 2022 increased by 24.2% to KRW 3.8554 trillion from KRW 3.1035 trillion in 2021, and Hanwha Solutions' short-term foreign currency borrowings surged by 24% from KRW 730.6 billion in 2021 to KRW 906.1 billion in the first half of 2022.
Hyundai Motor Group showed a transfer of funds to the United States by investing in the establishment of a robotics company in the United States, which is the chairman's personal company.
On the other hand, the amount of foreign direct investment attracted to Korea in the first half of 2022 decreased by 15.6% compared to 2021, reaching USD 11.09 billion, and the foreign direct investment outflow from Korea in the first quarter of 2022 increased by 123.9%, more than double that of the same period last year, reaching USD 25.4 billion.
The rapid increase in Korea's short-term foreign currency debt due to capital transfers in the US and conglomerate-led US investment for the short-term purpose of boosting stock prices has become a link that further undervalues the exchange rate as the debt burden increases due to the expansion of US foreign currency investment in the wake of the sharp decline in the value of the won.
Refer to <Surge in Foreign Currency Debt of 7 Conglomerates Expanding US Investment, Vicious Exchange Rate Cycle, September 8, 2022>