U.S. trade negotiations hit impasse as Seoul bristles at outsized investment scheme

Tariff negotiations between Korea and the United States have hit a serious impasse as disputes over the specifics of implementation stalling progress, with Washington warning that it may roll back concessions.

U.S. Secretary of Commerce Howard Lutnick speaks during an interview with CNBC on the floor at the New York Stock Exchange in New York on Sept. 11. [REUTERS/YONHAP]

Tariff negotiations between Korea and the United States have hit a serious impasse, despite the two countries reaching a broad trade agreement in late July. Disputes over the specifics of implementation have stalled progress, with Washington warning that it may roll back concessions.

U.S. Commerce Secretary Howard Lutnick told CNBC on Thursday that Japan had already signed the deal and warned that Korea would have to either pay tariffs or accept the agreement. He indicated that if negotiations break down, U.S. tariffs on Korean goods — currently at 15 percent — could revert to 25 percent.

At the center of the dispute is a $350 billion investment package. The United States is demanding what Korean officials describe as a “blank check” scheme similar to Japan’s deal, under which Washington would decide when, where and how Korea deploys funds. Washington's proposal would leave little room for Seoul to direct or distribute investment independently.

Lutnick cited Japan’s participation in the Alaska liquefied natural gas pipeline as an example. In that model, Japan invested alongside Washington in a U.S.-led project, sharing revenues 50-50 until costs were recovered, after which the United States claims 90 percent of the profits.

Seoul has pushed back, saying it cannot shoulder such a massive investment — nearly 20 percent of its GDP — entirely as equity. Korean negotiators also object to the absence of safeguards such as dividends or guaranteed interest before principal repayment. Instead, Korea has proposed credit guarantees to reduce risk, but Washington remains firm.

U.S. President Donald Trump, fifth from left, poses for a photo with Korea’s delegation for tariff negotiations, including Minister of Economy and Finance Koo Yun-cheol, fifth from right, at the White House on Aug. 30. [SCREEN CAPTURE]

“Unlike Japan, we don’t have the same level of foreign exchange reserves and we aren’t a reserve currency country,” said Kim Yong-beom, director of national policy, during a broadcast debate on Tuesday. “We’ve asked Washington to consider the shock this could cause Korea’s foreign exchange market and to work with us on solutions, but that is where we remain stuck.”

President Lee Jae Myung echoed this stance during a press conference marking his first 100 days in office on Thursday, saying, “Why should we sign something that isn't in our interest? We will continue negotiations, but aim for a rational deal.”

Working-level talks in Washington on Monday ended without progress, prompting Minister of Trade, Industry and Energy Kim Jung-kwan to travel to the United States on Thursday for ministerial negotiations with Lutnick.

Japan’s agreement is intensifying pressure on Korea. Washington is reportedly set to cut tariffs on Japanese automobiles to 15 percent, while Korean officials warn that matching Japan’s deal would impose an outsized burden.

“Japan has set a harmful precedent,” said Chang Sang-sik, head of trade analysis at the Korea International Trade Association. “Korea’s $350 billion commitment is excessive compared to its foreign exchange reserves of about $400 billion, and accepting it as is could lead to a crisis on the scale of a currency meltdown.”

U.S. President Donald Trump speaks at the Religious Liberty Commission at the Museum of the Bible in Washington on Sept. 8. [EPA/YONHAP]

Korea’s foreign reserves stood at $416.3 billion at the end of August, meaning the U.S. demand amounts to 84 percent of the total. Japan’s investment package, by contrast, represented just 41.5 percent of its $1.32 trillion in reserves. Japan’s net external financial assets of $3.62 trillion also exceed Korea’s threefold.

The United States is also pressing Korea to ease nontariff barriers on sensitive agricultural products. While Seoul has pledged no additional openings for rice or beef, it has already agreed to "strengthen sanitary cooperation" on produce imports, leaving room for discussions on quarantine standards.

“If Korea continues to resist the investment demands, the United States could bring previously muted issues — such as auto tariffs and agricultural market access — back to the negotiating table,” said one trade expert.

The talks have been further complicated by Seoul’s push for expanded U.S. work visas, spurred by the recent detention of Korean workers at an LG Energy Solution-Hyundai Motor battery plant in Georgia.

“Both sides are playing hardball,” said Heo Yoon, a professor of trade at Sogang University’s Graduate School of International Studies. “The United States is unlikely to back down, but Seoul cannot easily accept Washington’s terms either. The government must weigh both economic and diplomatic costs to find a middle ground.”

Chang suggested a potential compromise.

“Korea could reduce its burden by stretching out the investment schedule, securing a dollar swap to ease currency concerns and narrowing projects to areas it leads in,” he said. “The government should restructure the deal to reduce its burden and instead present other concessions as a package, such as long-term purchases of energy from Alaska or greater agricultural market access, to seek a breakthrough in the negotiations.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom. BY KIM WON [shin.minhee@joongang.co.kr]