South Korea is racing to finalize a U.S. trade deal that mirrors-or surpasses-the recently announced U.S.-Japan agreement, which slashes tariffs and commits $550 billion in Japanese investments. As Seoul's top trade and industry officials head to Washington this week, the stakes are rising fast, with an August 1 deadline looming to avoid 25% reciprocal tariffs.

President Donald Trump's deal with Tokyo reduced auto tariffs to 15%, opened access for U.S. rice and ag goods, and included strategic protections for industries like chips and pharmaceuticals. It's now widely seen as the benchmark for South Korea's negotiations, according to analysts and market watchers.

"Investors view the Japan-U.S. deal as a baseline," said Kim Sung-rae of Hanwha Investment & Securities. "It puts pressure on Korea to match or exceed those terms."

South Korea's benchmark KOSPI index responded modestly, up 0.2% on Wednesday. Hyundai Motor rose 7.3% and Kia jumped 7.6%, reflecting optimism that Seoul will land a competitive outcome.

What's on the Table?

The South Korean government has signaled it's willing to boost energy cooperation and industrial investments, echoing Japan's strategy to secure tariff reductions. However, Seoul has made clear it will not open its rice and beef markets, instead proposing increased U.S. imports of biofuel crops like corn.

"We will make an all-out effort to produce a positive-sum result," said Industry Minister Kim Jung-kwan, citing opportunities to advance industrial and energy partnerships. He is expected to meet with U.S. Commerce Secretary Howard Lutnick and Energy Secretary Chris Wright to discuss potential areas for collaboration.

South Korea has also emphasized its interest in semiconductors and shipbuilding, as well as joint ventures in LNG-including the $44 billion Alaska pipeline project that Trump touted in a recent Truth Social post. But Korea's trade envoy raised doubts about the project's feasibility, despite past interest.

Strategic Risks and Rewards

Trade experts say Seoul's challenge lies in securing a fair deal without conceding too much in politically sensitive areas like agriculture. While Japan accepted broader ag market access, South Korea is prioritizing industrial parity and tech-sector alignment instead.

"There's little chance Seoul will agree to terms significantly worse than Tokyo's," said Kim Yang-hee, trade professor at Daegu University. "But they may seek different trade-offs-less on ag, more on manufacturing and chips."

Kim Yong-jin of Sogang University added that Seoul will likely need to boost energy imports and industrial investments to meet U.S. expectations, especially if tariff parity is to be maintained.

Complicating matters, the U.S. reportedly asked South Korea to help finance a large-scale fund to revive its manufacturing sector, according to Chosun Ilbo. However, no clear source of capital or structure for the fund has been revealed.

The Political Balancing Act

New President Lee Jae Myung has made clear that South Korea will not accept a trade deal that leaves it at a comparative disadvantage. Yet, with a tight timeline and global scrutiny, Korean negotiators are in a tight spot.

The pressure is compounded by Washington's broader trade agenda, which also includes talks with Indonesia and ongoing disputes with the European Union over retaliatory tariffs. The outcome of this week's discussions could shape not only Korea-U.S. trade relations, but also influence how the Biden administration-or a second Trump term-approaches Asia-Pacific economic alignment.