Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
South Korean President Lee Jae Myung has warned that the nation’s economy could face a crisis comparable to its 1997 meltdown if the government acquiesces to current U.S. trade demands without adequate safeguards. Speaking from his Presidential Office in Seoul during a Reuters interview on September 19, 2025, President Lee cited a dispute over the handling of a proposed $350 billion South Korean investment in the United States as a critical point of contention in stalled bilateral trade negotiations.
Stalled Trade Negotiations and Economic Warnings
The core of the dispute revolves around a verbal trade agreement reached in July, where the U.S. would lower tariffs on South Korean goods in exchange for a substantial investment. President Lee emphasized that a cash investment of this magnitude, without a crucial currency swap agreement, would severely destabilize South Korea’s financial markets.
Seoul has proposed a foreign exchange swap line with the U.S. to mitigate the potential shock to the won currency. Lee drew parallels to Japan, noting its significantly larger foreign exchange reserves, the international status of the yen, and an existing swap line with the United States, highlighting South Korea’s different economic vulnerabilities.
U.S. Commerce Secretary Howard Lutnick has pressed South Korea to accept the deal or face tariffs, referencing the Trump administration’s stance that foreign governments effectively pay these levies. President Lee, however, expressed confidence that “between blood allies, we will be able to maintain the minimum amount of rationality,” suggesting a desire to avoid walking away from the deal despite the challenges.
Complexities in Bilateral Relations
The ongoing trade and defense discussions are set to overshadow President Lee’s upcoming trip to New York, where he will address the United Nations General Assembly and chair a meeting of the Security Council. This follows his first summit with President Trump in August, which, despite not yielding a joint statement, Lee characterized as building a strong personal tie.
Bilateral relations were recently tested by a U.S. immigration raid in Georgia, where over 300 South Korean workers at a Hyundai Motor battery plant were detained. President Lee acknowledged the public anger in South Korea over the “harsh” treatment, warning it could deter future foreign investment in the U.S. However, he clarified that he did not believe the raid was intentionally directed by President Trump, praising the U.S. leader’s offer to allow the workers to remain.
Regarding defense, Lee noted that while both nations agree on increasing South Korea’s contributions for the 28,500 U.S. troops stationed on the peninsula, Washington prefers to keep security and trade talks separate. He stressed the urgency of resolving the “unstable situation” in trade discussions, hoping to avoid extensions into the next year.
Regional Geopolitics and Emerging Blocs
Beyond bilateral issues, President Lee also addressed broader regional security concerns. He expressed little optimism for inter-Korean talks, noting Pyongyang’s consistent rebuffs of Seoul’s overtures. Lee reiterated his predecessor’s view that North Korea’s military cooperation with Russia poses a significant threat to South Korea’s security, advocating for dialogue and coordination over simplistic responses.
The interview highlighted increasing global tensions, with Lee observing a growing confrontation between a “socialist camp” and a “capitalist, democratic camp.” He specifically mentioned Chinese President Xi Jinping hosting North Korean leader and Russian President Vladimir Putin at a military parade and summit in Beijing earlier this month, underscoring the deepening alignment of these nations.
President Lee warned of an escalating spiral of rivalry, where increased cooperation between South Korea, Japan, and the United States is met by closer ties among China, Russia, and North Korea. He described this as a “very dangerous situation for Korea,” given its geographical position, and called for finding an “exit ramp out of the escalating military tensions” to achieve peaceful coexistence.
