[Inside Chodong] Negotiations That Poured in Every Ounce of Effort, Time to Prepare for the Long Haul

Challenges Remain Despite South Korea-U.S. Tariff Agreement
Era of Transactional Diplomacy Requires Long-Term Strategy

The Korea-U.S. tariff negotiations, which had been the most significant challenge for the Lee Jaemyung administration over the past five months, have cleared a major hurdle for now. This outcome was the result of the negotiation team's patience and persistence, as well as the leadership of President Lee Jaemyung, who supported them. Regarding the details of the $350 billion (approximately 500 trillion won) U.S. investment package, which President Donald Trump had unilaterally demanded, the negotiation team engaged in dozens of face-to-face and virtual talks. President Lee instructed them, "If the conditions are not reasonable, there is no need to rush to conclude the negotiations," and the team fiercely advocated for "national interest" and "commercial rationality" throughout the process. Even Kim Yongbeom, the Presidential Chief of Policy, who was known as a "fixer" for his expertise in macro and micro policy, confessed, "According to my wife, I even shouted 'Rutnick!' in my sleep" (interview with The Asia Business Daily on the 3rd), underlining the immense pressure they faced.

The traces of these intense negotiations can be seen throughout the agreed terms. In Article 1 of the Memorandum of Understanding (MOU), Korea stipulated "commercial rationality," agreeing to invest $200 billion in the United States, divided into annual installments of $20 billion in cash (equity). This was a "last line of defense" aimed at minimizing shocks to the relatively vulnerable foreign exchange market (FX), given Korea is not a key currency country. The investment targets are limited to projects with commercial rationality, and the United States cannot make unilateral decisions. Profit sharing before the recovery of the principal investment is set at 50:50, but if it appears that the principal and interest will not be fully repaid within 20 years, the profit-sharing ratio can be adjusted.

After overcoming countless hardships, some uncertainty has been lifted, but now it is time to take follow-up measures and make necessary demands. One must not become complacent, thinking, "Things will be fine for the time being." It is also important not to overlook the possibility that the agreement could be reversed by force. Such signs continue to appear. For example, after completing the summit schedule in Gyeongju, U.S. Secretary of Commerce Howard Lutnick claimed on his way back to the United States that Korea would participate in the "Alaska Natural Gas Pipeline" project. In response, Minister of Trade, Industry and Energy Kim Junggwan explained, "The gas pipeline project is high-risk and does not easily meet our standards for commercial rationality" (statement at the National Assembly's Budget and Accounts Committee on the 6th). In addition, negotiations on the wording of the "Joint Fact Sheet (JFS)," which includes the agenda of "nuclear submarine fuel supply" approved by President Trump, are also dragging on.

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As soon as the agreement is finalized, efforts must focus on swiftly reducing tariffs on items such as automobiles and related parts from 25% to 15%. It is also necessary to check whether pharmaceuticals and timber are receiving Most Favored Nation (MFN) treatment, whether aircraft parts, generic drugs, and natural resources are subject to zero tariffs, and whether the tariff rate on semiconductors is "no less favorable" than that applied to Taiwan. Contingency plans must be in place in case the promised tariffs are not applied on time.

At the stage of assessing "commercial rationality," it is important to consider using the "public forum," including the National Assembly. For example, the contents of discussions between the "Investment Committee," chaired by Secretary Lutnick, and the "Cooperation Committee," chaired by Minister Kim, should be transparently disclosed to the public and the market for evaluation. This is because there is a high possibility of significant differences in perspectives between Korea and the United States.

The annual $20 billion cap is merely a minimum safeguard for the foreign exchange market. There are numerous warnings that it could continue to act as a source of market instability. Efforts to expand both the scale and duration of currency swaps should be pursued in parallel. Moreover, as part of "alliance modernization," Korea and the United States must quickly establish "milestones" to accelerate progress on security package issues, such as "nuclear enrichment and reprocessing" and the "transfer of wartime operational control."

Presidential aides who participated in the tariff negotiations invoked "Henry Kissinger" to express the hardships faced by the weaker party, while one diplomatic report analyzed that the international community has shifted from "values-based" to "transaction-based" diplomacy. President Lee, who poured his soul into these efforts, reportedly said multiple times, "We must strengthen our national power." Now, it is time to prepare for the long haul.