By: Shim Jae Hoon
In the end, it turned out to be a win-win game, a phrase that South Korean officials frequently employ when dealing with their cantankerous partners in Washington. US President Donald Trump got his investment deals, while the Lee Jae Myung government managed to get threatened tariffs reduced from 25 percent to 15 percent for most of South Korea’s industrial exports including cars.
Beyond the details, the most important outcome, for not only South Korea but the rest of the world, is that the Trumpian tariffs effectively end the era of global free trade. The United States, the world’s biggest market, is now effectively off-limits to the countries unable to comply with whatever Washington imposes in the way of market entry fees.
The impact on the South Korean economy, which has grown on the back of global free trade in the past five decades, will be significant, especially with the US markets taking anywhere between 18 percent and 19 percent of total exports next to China.
At the end of their hour-and-a-half talk inside a museum building in the ancient city of Gyeongju, southeast of Seoul, on the sidelines of the annual Asia Pacific Economic Cooperation (APEC) summit, the US and South Korea agreed on the details of tariff and investment demands imposed by Washington, overshadowed by the impending Trump-Xi Jinping summit. Accordingly, Trump didn’t stay for the APEC summit, which could be expected since such events deal with matters that bore him, but which nonetheless show the US isolation on several issues.
The Xi-Trump meeting inside the reception room at the military airbase in Busan was an anticlimax. Despite it being their first meeting in six years, with Xi speaking about the need to keep their bilateral relations on an even keel and talking of the need for the two countries to avoid stormy waves, in Xi’s words, there was little of note. Trump said he would visit Beijing next year for more substantial talks. The photo of their meeting showed all Chinese leaders including foreign minister Wang Yi looking sober and sometimes frozen as they stared at Trump. It was a meeting devoid of warmth.
Under the Korean trade negotiated between the two nations, the US’s tariff reductions are in exchange for Seoul’s agreement to invest US$350 billion in the US over the next decade. Of that, Seoul will invest US$20 billion a year, stretching over the decade, choosing projects Seoul deems commercially viable enough, rather than allowing the US to decide which projects should warrant investment. The remaining US$150 billion will come from South Korea’s huge shipbuilding sector, which is mainly held by private business groups.
That investment category represents a historic turn for South Korea’s already significant industrial sector, helping Korea maintain its position as the leading global shipbuilding giant, which it already claims to be, potentially even bypassing China’s place in the global shipbuilding sector. However, one analyst in Seoul questioned whether the US could supply enough manpower to build more ships, given the shortage of American industrial workers. South Korea itself is increasingly reliant on foreign workers in this sector, importing and training foreign workers from South Asia, even some from Africa.
Investment terms announced by the two sides represent significant success for the Lee government, which came to office just four months ago in the wake of the chaotic collapse of his predecessor Yoon Suk Yeol’s regime, which exploded on a self-coup plot. Lee managed to clinch a much better deal than initially forecast, largely with arduous effort from his economic technocrats headed by chief presidential adviser Kim Yong Beom, who headed dozens of negotiating rounds before coming to the final table, rightly earning Trump’s recognition as a “tough” negotiator.
Business leaders also helped on the sidelines, with Korean Air offering to purchase more than 100 US-built aircraft in the years to come. As for President Lee, he successfully fought off President Trump’s tough-driving ego with a plenty of smiles and gifts: Trump was decorated with a gold- and jewel-crusted Grand Order of Mugungwha, the nation’s highest decoration, and a copy of the Silla Dynasty Gold Crown worn by the 8th Century Korean monarch, first such gift ever presented to a foreign head of state.
Trump’s demand for a US$350 billion investment, a quid pro quo for reducing tariffs, was something clearly beyond the reach of South Korea. With its foreign exchange holdings worth just US$420 billion, Seoul could hardly risk a sustained, decade-long foreign exchange drain without risking a serious financial crisis if it accepted Washington’s demand for an annual investment outflow of US$20 billion a year stretched over an eight-year time frame.
President Lee’s negotiators fought hard against that demand, arguing it could cause another foreign currency crisis such as the one that forced South Korea to seek an International Monetary Fund bailout in 1997. Thus, the final agreement adds two more years to the 10-year time frame, with Seoul having the right to review each investment project as to its commercial viability, to make sure the government is confident of recouping its investment.
Under the terms of the investment, profits from invested projects would be split half and half until the capital has been fully recouped, so that Seoul wouldn’t risk losing money. Once the investment has been fully recovered, profit sharing will change to 90-10 with the biggest share going to the US firm.
South Korea’s global merchandise exports last year totaled US$683.6 billion, 20 percent of which were in semiconductors. That sector alone claimed a 31 percent increase over the previous year.
Car exports claimed US$70 billion, much of it to the US market. The country’s overall exports moved up to sixth place in the global export ranking, rendering the issue of free trade an essential element of South Korea’s economic survival.
Trade is not the only challenge facing South Korea. The US-China confrontation is adding another dimension to rising tension facing the western Pacific. At the Geongju talks, President Lee asked Washington to provide nuclear fuel for its next-generation submarine project.
With North Korea and China increasingly prowling the sea around the Korean peninsula, Seoul needs nuclear-powered, not diesel-powered subs for its undersea surveillance. Seoul’s fleet of diesel-powered submarines limits its undersea operational capability.
In a major step to augment South Korea’s defense capability, Trump has agreed to help South Korea acquire nuclear-powered subs. But another potential issue is how that offer would be seen by other countries including Seoul’s geographic neighbors such as Japan and China, both of which have security concerns over the peninsula, and especially North Korea, with its own efforts to gain any further nuclear-related technology. It remains to be seen how Washington will deal with these security implications.
With respect to the security issue, the Trump administration is broadly supportive of Seoul’s increasing defense role in the face of rising challenges not only from North Korea but also from China. Seoul’s new government under Lee, despite his reputation as a liberal-left leader on economic issues, is now signaling readiness to steadily increase its defense spending from the present 2.3 percent of GDP to around 5 percent as demanded by Washington.
That would mean more than doubling the present share of US$44 billion Seoul is spending annually on its defense, or 13 percent of its total annual budget.
In addition to rising defense expenditure, the Lee government is also requesting to take over wartime operational control from the current US-led United Nations Command structure. In principle, US Defense Secretary Pete Hegseth agrees that Washington prefers Seoul taking more share of its security responsibility, regarding the Lee government’s policy as positive for lessening the US global security burden.
At least on the security front, Seoul and Washington are coming closer on their perspective, with the Trump administration welcoming South Korea’s policy of assuming wider responsibility in the region, together with Japan under the new administration of Prime Minister Takaichi Sanae, who vows to continue the rightwing policy of former premier Abe.
Another important point is the failure of North Korean leader Kim Jong Un to make a surprise appearance for a meeting with Trump, as he did in 2019 at Panmunjom during Trump’s former term in office. Probably fortified by his recently buttressed ties with Beijing and Moscow, Kim showed no interest in resuming contacts with Trump, despite Washington’s indication that Trump would be interested in taking up the subject of sanctions now imposed on North Korea, apparently in exchange for Kim arresting the pace of his nuclear weapons program.
Someone should ask Lee what it was like kissing trump's harry, dimpled fat ass. 😂