Cash requirement clouds $350 billion S. Korea-U.S. deal

Late July saw a broad agreement reached in South Korea-U.S. tariff negotiations, but subsequent discussions have left the process in uncertainty, turning initial relief into frustration. The United States is insisting on a “cash upfront” arrangement for the $350 billion in U.S. investments, which South Korea initially expected to take the form of loans or guarantees. While South Korea had envisioned a mutually beneficial outcome through projects like Make American Shipbuilding Great Again (MASGA), the U.S. approach appears focused solely on its own interests.

It is a good time to revisit the playbook. In November of last year, a report titled User Guide for Restructuring the International Trade System—commonly called the Myron Report—was released. Written by Fed board member Steven Myron, known for advocating a “big cut” in interest rates and supporting former President Donald Trump, the report’s proposals now closely mirror the direction of current negotiations, even though the author was little known at the time.

The report argues that the root of economic imbalances lies in the persistent overvaluation of the dollar. To strengthen U.S. manufacturing and reduce fiscal and trade deficits, the report recommends inducing a weaker dollar. High tariffs serve as leverage, bringing other countries to the negotiating table with the promise of tariff relief. Threats to withdraw the U.S. security umbrella may also be used to reinforce these demands.

The approach carries risks. A weaker dollar could undermine its reserve currency status and cause U.S. bond yields to spike. The report suggests converting national holdings of U.S. debt into 100-year bonds, allowing governments to spend freely without interest burdens. Currency swaps could be offered as incentives to countries concerned about liquidity, a solution likened to a magical diet that promises results without effort.

Since early April, when the U.S. announced reciprocal global tariffs, developments have followed a similar pattern. High tariffs are imposed first, with the promise of reduction if satisfactory proposals are made. Politically pressured Japan quickly agreed, and South Korea followed suit, using Japan’s deal as a benchmark. The $350 billion in U.S. investments, initially considered minor, has proven to be a major constraint. The U.S. is effectively demanding cash investments at its chosen locations while claiming 90 percent of the profits—an approach reminiscent of the 100-year bond strategy.

Some observers argue the terms are harsher than postwar reparations and suggest abandoning negotiations. Even with a 25 percent reciprocal tariff, South Korea’s total exports would drop by only around 4 percent, making it more effective to use the funds to support affected domestic companies. However, the U.S. may impose even higher punitive tariffs if it treats tariffs as a coercive tool. For South Korea, which depends heavily on exports, giving up the U.S. market is not a viable option.

For now, South Korea must continue negotiations cautiously without breaking the process. Efforts should focus on adjusting investment size and conditions, including securing minimal safeguards such as currency swaps. Monitoring Japan’s actions is also crucial. Sanae Takaichi, the Liberal Democratic Party leader and likely next Japanese prime minister, has indicated a willingness to renegotiate, while Economic Revitalization Minister Ryosei Akazawa has emphasized that actual investments from the proposed $550 billion total amount to only one to two percent, with the rest in loans and guarantees. Unlike the July negotiations, South Korea cannot afford to miss details under deadline pressure. Lawmakers should exercise restraint in politically pressuring the government and negotiating team and allow space for careful deliberation.