South Korea and the U. S. Talk Big Money

Key Points

Investment Pledge: South Korea and the U.S. are discussing a $350 billion investment deal.
Currency Concerns: The Korean won has been weak, partly due to the uncertainty surrounding the deal.
Upcoming Meetings: U.S. President Donald Trump will meet with South Korean President Lee Jae Myung and Chinese President Xi Jinping.

Details

Investment Structure

South Korea is seeking a balanced investment package that could include:

Direct investments
Loans
Guarantees

The exact breakdown is still under discussion. The need for a currency swap will depend on how the deal is structured.

Currency Market Impact

The Korean won has been volatile:

Hit its weakest point against the dollar since 2009 in April.
Saw a short-lived rally but has since weakened again.

The finance minister, Koo Yun Cheol, noted that much of the recent depreciation reflects market concern over the unresolved deal.

Trade and Tariffs

Current Tariffs: U.S. tariffs on Korean cars remain at 25%.
Historical Context: South Korea previously enjoyed zero tariffs on auto exports to the U.S. under a free trade agreement.
Comparative Disadvantage: Japanese automakers now face a 15% tariff, putting Korean automakers at a disadvantage.

Economic Strategy

South Korea is focusing on building an innovation-driven economy:

Investing in artificial intelligence, digital transformation, and deep-tech sectors.
Addressing structural challenges like population aging, declining birth rates, and rising debt-to-GDP levels.

The finance minister stated that the government's 58% debt projection represents a worst-case scenario, assuming most targeted investments fail. Even partial success could yield significant breakthroughs.

Upcoming Developments

APEC Summit: South Korean officials are working to finalize the deal during the upcoming APEC summit.
24-Hour Trading: The government is accelerating plans to launch 24-hour trading of the won to enhance market access and reduce the "Korea discount" on equities.

Conclusion

The negotiations between South Korea and the U.S. are complex and far-reaching, with significant implications for trade, currency markets, and economic strategy. The outcome of these talks could shape the economic landscape for years to come.