The core issue centers on the U.S. demand that South Korea transfer $350 billion in cash investments to the United States as part of a broader trade agreement involving tariff reductions. This figure represents an enormous 84 percent of South Korea’s foreign exchange reserves, which stood at approximately $410 billion as of August 2025. President Lee cautioned that if this amount were withdrawn and invested entirely in U.S. cash assets without a currency swap agreement or similar financial safeguards, it would expose South Korea’s economy to profound risks, including severe currency instability and liquidity crises comparable to those experienced in 1997.
During a detailed interview with Reuters on September 19, 2025, President Lee emphasized, through a translator, that “without a swap, if we were to withdraw $350 billion as the U.S. is requesting and invest it entirely in cash within the U.S., South Korea would encounter a scenario reminiscent of the 1997 financial crisis.” That crisis, triggered by a liquidity crunch and speculative attacks on the Korean won, devastated the nation’s financial system, sharply curtailed growth, and led to widespread hardship. Lee’s stark comparison highlights the potentially devastating consequences of the current impasse if the deal proceeds under existing terms without proper protections.
Background and Trade Deal Details
The proposed investment deal is tied to a broader U.S.-South Korea trade negotiation aimed at resolving tariffs that the U.S. had imposed during the Trump administration. Under the agreement, the U.S. would reduce its tariffs on South Korean products from 25 percent to 15 percent, a significant concession designed to stimulate bilateral trade. In return, South Korea would commit to investing $350 billion in the United States over a set period. This would include transfers of cash and capital presumably to boost U.S. industries and economic growth.
However, the agreement has stalled because of deep disagreements about the management of these investments, their commercial viability, and profit-sharing arrangements. One major sticking point is U.S. President Donald Trump’s expressed desire to "select" and control the investment allocations, effectively granting Washington oversight and discretion regarding where and how South Korean funds would be deployed. This approach conflicts with South Korea’s principle that investments must be commercially viable and managed with safeguards against financial risks.
South Korean officials have proposed creating a foreign exchange swap line with the U.S. This financial tool would act as a buffer, stabilizing the won-dollar exchange rate and preventing sudden capital outflows that could destabilize South Korea's economy. However, the acceptance of this proposal by the United States is still uncertain. President Lee did not clarify the likelihood of U.S. approval of the swap line, though experts regard it as crucial for preventing a currency crisis.
Kim Yong-beom, a senior policy advisor to President Lee, explained earlier that South Korea has introduced a safety mechanism to minimize financing risks by emphasizing support only for economically sound and commercially viable projects, rather than unconditional financial backing. This contrasts with the U.S.’s current emphasis on direct investment transfers, which might expose Seoul to substantial financial and economic vulnerabilities. According to Lee, "achieving detailed agreements that ensure commercial reasonableness is currently the primary objective—yet it also presents the greatest hurdle" in finalizing the deal.
Comparison to Japan’s Deal and Regional Context
President Lee pointed out that South Korea’s circumstances differ significantly from those of Japan, which recently concluded a $550 billion investment agreement with the U.S. in July 2025. Japan was able to negotiate from a stronger position with more than double South Korea’s foreign exchange reserves, an internationally recognized currency (the yen), and an established currency swap line with the U.S. These factors provided Japan with greater financial stability and flexibility, reducing risks associated with large capital flows or investments.
In contrast, South Korea's comparatively smaller reserves and the absence of a swap line with the U.S. heighten the risk that the $350 billion investment commitment—if moved in cash terms without financial safeguards—could unsettle South Korean financial markets. South Korea also lacks the global currency status of the yen, making it more susceptible to speculative attacks and volatility in foreign exchange markets.
The disparity underscores why Seoul remains cautious about adopting similar terms to Japan’s deal without comprehensive safety nets. President Lee emphasized that South Korea’s investment approach must prioritize commercial viability and financial prudence to protect its economy from potential shocks that could reproduce the turbulence experienced during the Asian financial crisis of 1997.
Tensions Beyond Economics: Immigration Incident
Relations between South Korea and the United States have also experienced strains unrelated to trade but contributing to the broader context of the negotiations. In early September 2025, a major U.S. immigration enforcement operation targeted a construction site of an electric vehicle battery plant jointly operated by South Korean conglomerate Hyundai Motor Group and LG Energy Solution in Georgia.
The U.S. Immigration and Customs Enforcement (ICE) raided the site, resulting in the detention of approximately 475 individuals, including 316 South Korean workers. The raid drew criticism from Seoul, with President Lee describing the treatment of detained South Korean workers as "harsh." He warned that such incidents could damage South Korean companies’ willingness to invest and operate in the United States, creating further complications in an already sensitive bilateral relationship.
Though the U.S. government apologized and agreed to seek reasonable measures to address the concerns following the raid, the incident has fueled apprehensions about the investment climate and cooperation between the two countries. Despite this, Lee affirmed that the episode would not jeopardize the strategic alliance between Seoul and Washington, which remains anchored by shared military cooperation and mutual security interests. At the same time, the incident complicates an already tense backdrop for the economic discussions.
Diplomatic Stakes and Future Outlook
President Lee plans to travel to New York starting Monday, September 22, 2025, to address the United Nations General Assembly and become the first South Korean leader to preside over a Security Council meeting. Despite the high-profile trip, there are no scheduled meetings with President Trump during the U.N. session, and trade discussions are not on the agenda.
Both leaders are expected to attend the Asia-Pacific Economic Cooperation (APEC) summit in South Korea in October 2025, which could offer another opportunity for dialogue. Until then, the unresolved investment dispute remains a point of uncertainty that risks undermining economic stability and diplomatic goodwill.
Lee expressed urgent concern about the stalled negotiations, saying that "we should resolve this unstable situation as soon as possible," when asked about the prospect of protracted talks extending into 2026. He also expressed cautious optimism that the two allies, bound by deep historical and military ties, could still find a rational path forward that balances security cooperation with economic prudence.
The South Korean government faces a delicate balancing act: responding to U.S. demands to maintain strong bilateral relations while protecting its own economic stability and avoiding the pitfalls of financial overexposure. The lessons of 1997 remain a painful reminder of the dangers that can arise from abrupt capital withdrawals and unchecked currency volatility—risks that could once again surface if the current investment deal proceeds without robust protections.
This comprehensive account shows that South Korea’s leadership is clear-eyed about the potentially catastrophic consequences if the current U.S. investment demands proceed without safeguards such as a foreign exchange swap line and assurances of commercial viability. The situation remains complex, entwined with issues of trade, diplomacy, security, and mutual trust between two key U.S. allies in the Asia-Pacific region. South Korea’s caution reflects its hard-earned experience overcoming past crises and its determination to avoid repeating history.
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