TACO Tuesday?: Trump Threatens South Korea With 25% Tariffs — Markets Yawn

President Donald Trump reignited global trade tensions this week with a late-night Truth Social post threatening to raise tariffs on South Korean goods to 25%, up from the current 15%, citing delays in Seoul’s implementation of a trade deal struck last year. In the post, Trump argued that while the U.S. had moved swiftly to lower tariffs in line with the agreement, South Korea’s legislature had failed to do its part. The increase, he said, would apply broadly across “reciprocal” tariffs, explicitly calling out autos, lumber, pharmaceuticals, and other goods. As with several prior announcements, the message was blunt, public, and light on procedural detail—leaving markets and policymakers to sort out what was signal, what was leverage, and what was likely to fade.

The threatened escalation targets a deal reached in July 2025, when Trump agreed to cut tariffs on South Korean goods from potentially punitive levels to 15% in exchange for Seoul pledging roughly $350 billion of investment into the U.S. economy. A central feature of the agreement was relief for South Korean automakers, with tariffs on cars and auto parts aligned at 15%, matching the rates applied to Japan and the European Union. The framework was further refined and reaffirmed during Trump’s visit to South Korea in October, giving the deal the appearance of finality—at least at the executive level. In that context, this week’s threat marks the first time Trump has openly suggested reversing course on a finalized trade agreement to apply pressure on a foreign legislature.

The holdup, from Seoul’s perspective, is less about resistance to the deal and more about domestic legislative mechanics . At the heart of the issue is a “Special Act on Strategic Investment Management,” legislation designed to establish a state-run investment corporation to oversee and deploy the $350 billion investment pledge promised to Washington. That bill, along with several related measures, was submitted to South Korea’s National Assembly last November but has not yet been formally enacted. Lawmakers argue that the delay reflects procedural review rather than political opposition, particularly given the scale and governance implications of such a large, state-backed investment vehicle.

Importantly, the politics appear favorable for passage. South Korea’s ruling Democratic Party holds 162 of the 300 seats in the National Assembly, with the opposition People Power Party holding 107. According to party officials, five related bills tied to the U.S. trade deal are already queued for review, and both major parties have proposed versions—an unusual alignment that materially increases the odds of passage. Ruling party spokesperson Kim Hyun-jung said this week that the legislation would likely be approved by the end of February, emphasizing that the government remains fully committed to honoring the agreement with Washington and correcting what she described as “misunderstandings” behind Trump’s comments.

South Korea’s executive branch has moved quickly to contain the situation. The presidential office convened emergency meetings to assess the impact of Trump’s remarks and reiterated that it had not received any formal notice from the U.S. regarding tariff changes. Seoul’s trade and industry ministers are now expediting trips to Washington to engage directly with U.S. counterparts, underscoring a strategy of de-escalation rather than confrontation. Finance officials have also pledged to keep the U.S. informed on legislative progress, signaling that this is more a timing dispute than a substantive breakdown in relations.

From a sector standpoint, the most exposed industries are autos, semiconductors, pharmaceuticals, and electronics—categories that dominate South Korea’s $132 billion in annual exports to the U.S.. Automakers like Hyundai Motor and Kia initially sold off on the tariff threat before paring losses, reflecting concern about potential margin pressure if duties were actually raised. Semiconductors, however, told a very different story. Shares of Samsung Electronics and SK Hynix surged, with SK Hynix jumping more than 8% on reports it is the sole memory supplier for Microsoft’s new AI chip. That rally effectively drowned out tariff anxiety, highlighting where investor conviction currently sits.

Indeed, the broader market reaction is perhaps the most telling aspect of this episode. South Korea’s benchmark Kospi briefly opened in the red following Trump’s post but reversed sharply higher, finishing the session up nearly 2% and ranking among the strongest markets in Asia. The smaller Kosdaq index also gained. This resilience suggests investors are treating the threat less as an imminent policy shift and more as another example of what markets have started to label a “TACO” trade. Trump has issued multiple tariff threats in recent weeks, including against Europe and Canada, only to walk several of them back or allow them to stall amid legal and political constraints.

Those constraints matter. Trump cannot impose tariffs unilaterally via social media; any increase would require formal executive action and would almost certainly face legal scrutiny. Several tariffs imposed over the past year are already under court challenge, and a landmark case currently before the U.S. Supreme Court could sharply limit the president’s authority to impose country-specific, across-the-board duties. A ruling against the administration would significantly weaken Trump’s leverage not just with South Korea, but with all major trading partners.

In that light, markets appear to be making a calculated judgment: South Korea’s legislature is likely to pass the required bills, the White House is unlikely to push a legally fragile tariff increase to the brink, and even if tensions flare, AI-driven fundamentals—particularly in semiconductors—are far more powerful drivers of equity prices right now. For investors, the message is clear. Until tariff threats translate into enforceable policy with real economic bite, they remain more headline risk than macro turning point.