FT: "South Korea Rejects Pressure for 'Japan-Style' Trade Deal"

Trump Insists on Personally Designating Investment Destinations in the U.S.
South Korea Pushes Back, Final Agreement Remains Elusive

The Financial Times (FT) reported that South Korea is strongly opposing U.S. President Donald Trump's demand to personally designate multibillion-dollar investment destinations in the United States. In an article titled "South Korea resists US pressure to finalise 'Japan-style' trade deal" published on the 16th (local time), FT stated that South Korea and the United States are struggling to reach a final agreement on the terms of a trade deal.

Yonhap News Agency

Yeo Han-koo, head of trade negotiations at the Ministry of Trade, Industry and Energy, visited the United States on the 15th and is holding talks with Jamison Greer, representative of the U.S. Trade Representative (USTR). This comes two months after the announcement at the end of July of an agreement in which South Korea would invest 350 billion dollars in the United States in exchange for U.S. tariff reductions. Upon arriving in Washington, Yeo stated, "The devil is in the details. Tense negotiations are underway over specific issues."

The main issue is whether South Korea will accept the U.S. demand for President Trump to personally designate the investment destinations for South Korean funds in the United States. According to multiple sources familiar with the negotiations, the United States has demanded, following Japan's precedent, that President Trump directly decide where South Korea's investments will be allocated. However, the South Korean government has reportedly rejected this as "unreasonable." FT also reported that bilateral relations have become even more strained after a large-scale immigration crackdown at the Hyundai Motor-LG Energy Solution battery plant in Georgia resulted in the detention of hundreds of South Korean workers.

After Japan proposed a 550 billion dollar project to the United States and the two countries reached an agreement, the Trump administration increased its pressure. As a result of this agreement, Japanese automobile exports are subject to only a 15% tariff, while South Korean automobiles still face a 25% tariff, putting them at a competitive disadvantage. U.S. Secretary of Commerce Howard Lutnick said in a CNBC interview, "Japan signed. South Korea has a choice: accept the agreement or pay the tariffs. The distinction is clear," pressing for an agreement.

FT pointed out that South Korea finds it difficult to accept a Japan-style agreement because its foreign exchange reserves are much smaller than Japan's and it has not concluded a currency swap agreement with the United States. In fact, Cho Hyun, Minister of Foreign Affairs, previously stated in the National Assembly that a Korea-U.S. currency swap was proposed as part of the trade deal.

Jennifer Lee, Managing Director at The Asia Group (TAG) in Washington, analyzed, "The Korean won is much more volatile than the Japanese yen in global markets, and South Korea's foreign exchange reserves are only about one-third the size of Japan's. If South Korea were to follow the U.S.-Japan agreement as is, the won market would become extremely unstable, and downward pressure on its value would increase."

Reuters also pointed out that South Korea's much smaller foreign exchange reserves compared to Japan and the low liquidity of the won, which increases volatility risk, make it difficult for South Korea to conclude a U.S. trade deal similar to Japan's. In this situation, concerns have been raised that implementing a 350 billion dollar investment plan could lead to a surge in demand for U.S. dollars, further intensifying downward pressure on the won. In contrast, Japan is an issuer of a key currency and has an unlimited currency swap agreement with the United States, ensuring smooth foreign exchange supply when capital inflows occur.

Some observers believe that the recent immigration crackdown at the Hyundai Motor-LG Energy Solution plant in Georgia has further increased uncertainty in the negotiations. Wendy Cutler, Vice President of the Asia Society Policy Institute (ASPI) and former U.S. trade negotiator, pointed out, "South Korean companies were shocked to see their employees taken away by immigration authorities," adding, "In this situation, they have become reluctant to make new investment commitments under pressure."