Korea resists U.S. pressure over $350 billion investment

U.S. Commerce Secretary Howard Lutnick pressured South Korea on Sept. 11, saying it must “either pay tariffs or accept the agreement — black or white.” He warned that if Seoul does not sign the contract outlining the $350 billion U.S. investment fund plan, the United States could unilaterally revert the mutually agreed 15 percent tariff rate on April 30 back to the 25 percent rate the U.S. imposed in early April. In response, the presidential office expressed a firm stance, saying, "We will not engage in negotiations that lack rationality and fairness.”

“South Korea did not sign when President Lee Jae-myung visited Washington," Lutnick said. "Japan signed the contract.” He is demanding that Korea sign, following the example of the Japanese government, which recently agreed to a $550 billion U.S. investment package. Reports indicate that Japan signed a deal under which it provides funds within 45 days once the U.S. government and President Donald Trump specify the investment targets and amounts, shares profits 50-50 until the investment is recovered, and thereafter divides profits nine parts to the U.S. and one part to Japan.

The South Korean government’s assessment is that it cannot accept the same approach as Japan due to significant differences in economic scale. Japan’s gross domestic product (GDP) is more than twice that of Korea, and its foreign exchange reserves stand at $1.3242 trillion, 3.2 times Korea’s $416.3 billion. To invest $350 billion during the Trump administration as the U.S. demands, Korea would have to use 84 percent of its foreign exchange reserves. This represents a far greater burden than Japan, for which the investment amount is 42 percent of its reserves.

If an additional $150 billion that Korean companies have separately agreed to invest is included, even exhausting the foreign exchange reserves would be insufficient. Warnings have emerged that unless the investment period is extended and the method shifted from direct investment to loans and guarantees, a “second foreign exchange crisis” could occur. Korea lacks the advantages of Japan, which can issue yen to repay debts and has a currency swap with the United States, effectively a "dollar overdraft account."

At his 100th-day press conference, President Lee Jae-myung said, “I will never make decisions against the national interest.” If the negotiation deadlock continues, Korea faces a dilemma: its exports could suffer serious damage due to tariffs 10 percentage points higher than Japan’s. The immediate priority is to clearly communicate Korea’s difficulties and persuade the U.S. not to treat the country as a “money machine.” In the final stages of negotiations, on which the survival of the Korean economy depends, the government and private sector must mobilize all resources to prevent irreversible damage to national interests.