Korea-U.S. tariff negotiations hit major impasse as Trump demands $350 billion investment ‘up front’

The Korea-U.S. tariff negotiations have hit a major impasse over the structure and conditions of a $350 billion investment package that Seoul has pledged in exchange for lowering Washington’s tariffs. The two sides remain divided over whether the funds will be paid in cash or guarantees, whether Washington will grant an unlimited currency swap line, and how profits from the investment will be shared.

U.S. President Donald Trump said on September 25 that the United States will get $350 billion from South Korea “up front.” The same day, The Wall Street Journal (WSJ) reported that U.S. Commerce Secretary Howard Lutnick asked South Korea to slightly increase its commitment, proposing that the amount be brought closer to Japan’s $550 billion deal agreed upon in July.

Lutnick also pressed South Korea to deliver more of the pledged funds in cash, not in the form of loans or guarantees, according to WSJ.

Washington is reportedly wary that a more lenient deal with Seoul could undermine its nonbinding memorandum of understanding (MOU) with Japan. Korean trade officials have denied receiving such a request.

Earlier this month, Japan reached an agreement with Washington to provide $550 billion, mostly in cash, under what officials have called a “blank check” arrangement. Tokyo also gave Washington effective control over investment decisions and agreed to split profits 50-50 until principal recovery, after which the United States would take 90 percent and Japan 10 percent. Korean officials warn that adopting a similar model could destabilize the won and drain reserves.

Seoul has made it clear that it cannot accept the United States’ terms unless Washington extends an unlimited currency swap line. Such a facility allows two central banks to exchange currencies and provides a vital foreign exchange safety net.

Kim Yong-beom, the director of national policy, said on September 24 in New York that “the draft MOU the United States delivered differs greatly from our understanding” and stressed that “an unlimited swap line is the minimum requirement.”

President Lee Jae Myung told Reuters earlier this week that without a swap line, withdrawing and investing the full $350 billion in cash could push South Korea into a crisis similar to the 1997 Asian financial crisis.

The $350 billion commitment amounts to 84 percent of South Korea’s $410 billion in foreign exchange reserves, underscoring why Seoul views a currency backstop as a nonnegotiable safeguard. Without the unlimited currency swap line, Korean officials have drawn a red line, warning that a deal would be off the table.

Still, Reuters, citing analysis by Citigroup, reported that the U.S. Federal Reserve is unlikely to approve an unlimited swap line with the Bank of Korea.

Instead, Washington may propose access to the FIMA repo facility, which allows foreign central banks holding U.S. treasuries to borrow dollars using those securities as collateral, Reuters reported.

Introduced in 2020, the program has been rarely used and is viewed as a limited liquidity measure for countries lacking swap agreements.

Profit-sharing remains another sticking point. During a meeting on September 24 with U.S. Treasury Secretary Scott Bessent, President Lee said he hoped discussions would progress “in a way that reflects commercial rationality and serves both nations’ interests.”

The remark was widely interpreted as a call for a fairer split. Washington is insisting on a 90-10 profit division in its favor, while Seoul argues that such terms are one-sided and is pushing for a 90-10 split in Korea’s favor until the principal is recovered.

Seoul is also seeking U.S. government guarantees to protect against investment losses, though Washington has not signaled whether it will accept that demand.

Analysts say that under the current proposal, Korea would bear most of the financial burden without having meaningful control over investment decisions or returns. But as time passes, Seoul may face growing pressure. The United States has already formalized tariff cuts for Japan and the EU, lowering auto duties from 25 percent to 15 percent, potentially putting Korean automakers at a disadvantage.

Market uncertainty is rising as talks drag on. On September 26, the Kospi fell 2.45 percent, or 85.08 points, to 3,386.03, slipping below 3,400 for the first time in nine sessions.

The Korean government hopes to finalize negotiations before or around the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju in late October, though officials say they will not sacrifice core principles for the sake of speed.

“The gap between the two sides is too wide to bridge quickly,” said Lee Jae-min, a law professor at Seoul National University. “It will likely take several weeks of intensive negotiations, and a deal before the APEC summit seems unrealistic.”

Jang Sang-sik, the head of the Korea International Trade Association’s international trade research division, said Seoul is working to build support through Cabinet and congressional channels in Washington, recognizing the limits of direct appeals to President Trump.

“Japan’s deal has emboldened the United States to press harder, and Korea needs to offer additional justification for its position,” he said.

BY KIM WON [kim.juyeon2@joongang.co.kr]