South Korea warns U.S. trade deal could spark financial crisis

South Korea warned U.S. trade demands could spark a crisis as President Lee Jae-Myung called for safeguards to protect the economy.

 

South Korea is now warning that U.S. trade demands could destabilise its economy if agreed on without safeguards. 

President Lee Jae-Myung has compared Washington’s push for a $350 billion cash transfer to conditions that triggered the 1997 Asian financial crisis.

The warning comes as trade negotiations stall, leaving businesses uncertain about the future. Lee told Reuters that without a swap-line agreement, South Korea’s financial system could come under severe stress. 

He said such an outcome would risk triggering another meltdown that forces Seoul to turn to the International Monetary Fund, as it did in 1997.

Dispute over investment terms

The United States has linked tariff relief on South Korean exports to the $350 billion commitment. Commerce Secretary Howard Lutnick said that Seoul must either agree or face tariffs. 

Washington also wants discretion over where the funds are directed, which is a demand that has alarmed South Korean officials.

So far, officials argue that a swap-line agreement would cushion the effects on the won and stabilise capital flows. They also insist that the US must give them guarantees that funded projects will be commercially feasible.

Unlike Japan, which signed a deal with the U.S. in July, South Korea lacks a permanent currency swap line and holds smaller foreign reserves. Lee noted these differences and mentioned that Tokyo can handle larger commitments due to its stronger financial position.

Comparisons to past crises

Lee has repeatedly referenced the 1997 Asian financial crisis, which forced South Korea into an emergency bailout. 

He warned that withdrawing $350 billion under the current terms could place unbearable pressure on the nation’s reserves and markets.

Analysts in Seoul say that even the perception of instability could weaken the won and push capital out of the country. 

Businesses are already worried that tariffs combined with uncertain investment rules could hurt exports and limit growth.

Tensions beyond trade

The trade standoff has been complicated by other disputes as well. Earlier this month, U.S. immigration authorities detained more than 300 South Korean workers at a Hyundai battery plant in Georgia. 

Images of workers in restraints angered the public in Seoul and raised questions about future investments in the U.S.

Lee later praised Donald Trump for offering clemency to the workers and said he did not believe the raid was deliberate. Still, the incident has damaged public confidence and added pressure on the alliance.

At the same time, South Korea continues to face security threats from closer cooperation between China, Russia and North Korea. 

Lee described this as a “dangerous” development that leaves Seoul at the centre of the tensions between authoritarian and democratic powers.

Looking ahead

Lee is set to travel to New York for the United Nations General Assembly and will be the first South Korean president to chair a Security Council meeting. 

While trade talks are not on the agenda, pressure at home continues to build.

Businesses in Seoul say that uncertainty must be resolved soon. Even the delay in finalising terms has created worries about market stability. Financial experts warn that prolonged standoffs with Washington could unsettle the currency and harm investor confidence.

In all, South Korea’s government now faces the challenge of balancing diplomacy with economic security. 

While both nations seem committed to their alliance, what happens next will determine how stable South Korea is over the coming years.

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