Korea and U.S. finalize $150 billion shipbuilding cooperation package ahead of August deadline

The shipbuilding project was the biggest contributor to Korea’s latest tariff agreement with the United States, said Minister of Economy and Finance Koo Yun-cheol as the two countries finalized the deal ahead of the Aug. 1 deadline.

A vessel is under construction at Hanwha Philly Shipyard in Philadelphia on July 16. [YONHAP]

The shipbuilding project was the biggest contributor to Korea’s latest tariff agreement with the United States, said Minister of Economy and Finance Koo Yun-cheol on Wednesday as the two countries finalized the deal ahead of the Aug. 1 deadline.

“The most notable part of today’s agreement is the $150 billion Korea-U.S. shipbuilding cooperation package, known as the MASGA [Make American Shipbuilding Great Again] project,” Koo said in a briefing held in Washington.

The briefing took place after U.S. President Donald Trump wrote on his social network earlier in the day that his administration had agreed to lower the reciprocal tariff from the proposed 25 percent to 15 percent in return for Korea’s $350 billion investments that are “owned and controlled by the United States.” Of the amount, $150 billion is earmarked for the shipbuilding industry.

The project encompasses the construction of new shipyards in the United States, work force training in shipbuilding as well as ship construction and maintenance, repair and operations.

He said that the MASGA project is expected to be led by Korean shipbuilders, adding they are expected to play a key role in revitalizing the U.S. shipbuilding industry.

Finance Minister Koo Yun-cheol speaks in a briefing held in Washington D.C. on Wednesday following the two countries’ agreement on tariff deal, which includes $350 billion Korean investment pledge in the U.S. [MINISTRY OF ECONOMY AND FINANCE]

Trump requested that shipbuilding in the United States proceed as quickly as possible, Koo added.

"The Korea-U.S. financial package is expected to be structured similarly to the $550 billion investment fund agreed upon between Japan and the United States," Koo said.

"Considering the relative size of the Korean and Japanese economies, it's meaningful that we reached a deal at roughly 36 percent of Japan’s scale," he added, while noting that Korea and Japan recorded similar trade surpluses with the United States last year.

The $150 billion earmarked for the shipbuilding sector is more than double the roughly 90 trillion won ($65 billion) in total market capitalization of Korea's three largest shipbuilders: HD Hyundai Heavy Industries, Hanwha Ocean and Samsung Heavy Industries.

Korea proposed further expanding the shipbuilding fund, but the United States expressed reluctance, saying that there aren't enough viable investment targets, according to presidential chief of staff for policy Kim Yong-beom.

The fund is expected to be largely spent on three areas: Korean shipbuilders' acquisition of U.S. shipbuilders, financing — in form of guarantees — for vessels ordered at U.S. shipyards invested in by Korean shipbuilders and investments in areas including infrastructure, autonomous ships and icebreakers, a specialized ship designed to move and navigate through ice-covered waters.

Due to the large scale, guarantees by public financial institutions like the Export-Import Bank of Korea and Korea Trade Insurance Corporation are expected to largely account for the amount.

“The $150 billion is essentially a cap amount that will be used over a long-term plan of 10 to 20 years,” said Yang Jong-seo, a senior researcher at the Export-Import Bank of Korea. “It’s important that this doesn’t turn into a one-sided giveaway to the United States, so we plan to structure the investment with concrete plans to ensure it can be recovered.”

The United States accounted for only 0.5 percent of the global ship orders last year, according to Clarkson Research.

"Even if the United States succeeds in rebuilding its shipbuilding industry with Korean investment and technology, whether it will place enough orders for ships is not clear," said Rhee Shin-hyung, who teaches naval architecture and ocean engineering at Seoul National University.

"Instead of making aggressive investments from the start, a step-by-step approach is necessary."

Korean shipbuilders' stocks jumped on the tariff agreement news.

Hanwha Ocean shares jumped 13.43 percent on Thursday upon market closing, while that of HD Hyundai Heavy Industries closed up 4.14 percent. Samsung Heavy Industries shares inched up 0.47 percent.

On a separate note, the ministry said that the financial authorities from Korea and the United States are conducting consultations on exchange rates, though there was no direct discussion on the matter during the trade talks with Trump earlier on the day.

BY JIN MIN-JI, KIM HYO-SEONG [jin.minji@joongang.co.kr]