Trump's $350 Billion Investment Demand Could Trigger 1997-Style Financial Crisis, Says South Korea's President
News Summary
South Korean President Lee Jae Myung stated that President Donald Trump's demand for a $350 billion investment in the U.S. could trigger a 1997-style Asian financial crisis without necessary safeguards. In an interview with Reuters, President Lee emphasized that if South Korea were to withdraw and invest $350 billion in cash as demanded by the U.S. without a currency swap, it would face a situation akin to the 1997 financial crisis. This demand stems from a verbal agreement in July where the U.S. would lower tariffs on South Korean goods in exchange for the investment. However, the agreement has not been formalized due to disagreements over how the investments would be managed. President Lee highlighted that South Korea seeks "commercial reasonableness" for its investments, noting that current proposals "provide no assurance of commercial viability," which remains the biggest obstacle. He also countered U.S. Commerce Secretary Howard Lutnick's suggestion that South Korea follow Japan's trade deal, pointing out South Korea's significantly lower foreign exchange reserves, the non-international status of the won, and the absence of a U.S. swap line.
Background
In 2025, Donald Trump's re-election as U.S. President has solidified his "America First" agenda, continuing to drive foreign trade and investment policies. Prior to this, the Trump administration had imposed tariffs on various trading partners, including South Korea, with the aim of bolstering domestic industries and employment. The current demand for a $350 billion investment from South Korea is a continuation of leveraging economic pressure to compel allies into making substantial investments in the U.S. South Korea was severely impacted by the 1997 Asian Financial Crisis, necessitating an International Monetary Fund (IMF) bailout, which left a lasting impression on the nation's economy and psyche. Consequently, the South Korean government is highly cautious about any demands that could lead to significant capital outflow and threaten financial stability. While the U.S. and South Korea are traditional military allies, the Trump administration has adopted a tough stance on economic and trade issues, seeking to rebalance trade relationships and attract foreign investment.
In-Depth AI Insights
What are the underlying strategic objectives behind the Trump administration's insistence on such a large investment demand, beyond direct economic benefit? - The Trump administration likely aims to achieve multiple strategic goals with this demand, extending beyond mere economic gains. Firstly, it can be seen as an extension of the "burden-sharing" principle, requiring allies to contribute to the U.S. not only militarily but also economically. - Secondly, it may be linked to U.S. efforts in building supply chain resilience in critical sectors like semiconductors and EV batteries, attracting South Korean high-tech companies to establish facilities in the U.S. to reduce reliance on single regions and strengthen domestic manufacturing capabilities. - Thirdly, by exerting significant economic pressure, the Trump administration might be testing the loyalty and compliance of its allies, seeking stronger leverage in global geopolitical competition. Why is South Korean President Lee Jae Myung so strongly resisting and emphasizing the risk of a 1997-style financial crisis? - President Lee's strong opposition is not merely a commercial negotiation tactic but reflects South Korea's profound concerns about national financial sovereignty and economic stability. The memory of the 1997 crisis is still fresh, and South Korea is unwilling to risk another large-scale capital outflow and currency depreciation. - The emphasis on a currency swap mechanism is a crucial safeguard South Korea seeks to buffer against potential financial shocks, acting as a "firewall." This indicates the South Korean government's desire to protect its economic vulnerability against potential unilateral U.S. actions and prevent excessive depletion of its foreign exchange reserves. - South Korea is not in the same position as Japan, lacking an international reserve currency and sufficient swap lines, which gives it less policy space and fewer buffers when facing such demands. What are the potential investment implications for global supply chains and relevant sectors (e.g., automotive, technology) if the U.S.-South Korea trade impasse continues or escalates? - A prolonged impasse would increase uncertainty and could mean continued tariffs on South Korean exports to the U.S., thereby harming the profitability and market share of South Korean automakers (like Hyundai) and technology companies (like battery producers). - In the long term, to circumvent tariffs and political risks, some South Korean companies might be compelled to re-evaluate their global production and supply chain layouts, potentially shifting some investments to other countries rather than solely concentrating them in the U.S. - This geopolitical friction could accelerate the global supply chain "de-risking" and diversification process, prompting investors to reassess highly concentrated risk exposures in single markets or regions. For global investors, this might entail seeking more resilient and diversified investment strategies.