South Korean President Lee Jae Myung has issued a warning: accepting the United States’ investment demands, currently at the centre of trade discussions, might plunge South Korea into a crisis not unlike the country’s 1997 economic collapse. Seoul and Washington remain deadlocked, arguing over a $350 billion investment proposal and the conditions attached to it.
Last July, the two sides reached a verbal understanding. The US would lower tariffs imposed during the Trump administration if South Korea committed to significant investments. The paperwork remains unsigned. Lee highlighted the absence of firm safeguards, such as a currency swap, describing the potential exposure for South Korea’s economy as grave.
“Without a currency swap, if we were to withdraw $350 billion in the manner that the US is demanding and to invest this all in cash in the US, South Korea would face a situation as it had in the 1997 financial crisis,” he said through a translator.
In response, Seoul has asked for a foreign exchange swap arrangement with the US—aimed at buffering possible shocks in financial markets. However, President Lee emphasised a sharp contrast with Japan’s position. “He said South Korea is different from Japan, which struck a trade deal with the US in July. Tokyo has more than double South Korea’s $410 billion foreign exchange reserves, an international currency in the yen and a swap line with the United States, Lee said.”
Commercial feasibility continues to block an agreement. “Reaching detailed agreements that guarantee commercial reasonableness is now the central task – yet it also remains the biggest obstacle,” Lee said. He noted that ongoing technical talks have failed to provide certainty on whether the proposed terms would be financially sustainable.
Former US President Trump stated the investments would be “selected” and controlled by US authorities, granting Washington discretion over allocation. Kim Yong-beom, Lee’s policy adviser, has previously explained that South Korea is working to build in safeguards to mitigate financial exposure.
Although the stakes remain high, Lee affirmed his intention to sustain close relations with the US. Asked about the prospect of abandoning the negotiations, Lee said: “I believe that between blood allies, we will be able to maintain the minimum amount of rationality.” He further observed both countries support increasing Seoul’s defence contributions, though the US seeks to keep security and trade issues on separate tracks.
President Lee is set to raise these topics at the upcoming United Nations General Assembly. He will also become the first South Korean president to chair a Security Council meeting. “We should end this unstable situation as soon as possible,” he said, when asked whether talks could extend into next year.
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With inputs from Reuters
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