South Korea Warns U.S. Trade Deal Risks 1997-Style Economic Crash in 2025
- Why Is South Korea Comparing the U.S. Trade Deal to the 1997 Financial Crisis?
- What’s the Sticking Point in the Negotiations?
- How Did the Hyundai Raid Inflame Tensions?
- Is the U.S.-Korea Alliance at Risk?
- What’s Next for the Trade Standoff?
- FAQs
South Korean officials are sounding the alarm over a proposed $350 billion trade deal with the U.S., warning it could trigger a financial crisis reminiscent of 1997 if currency safeguards aren’t included. The stalemate centers on control over investments and tariff reductions, with tensions exacerbated by recent immigration raids and geopolitical divides. Here’s why Seoul is pushing back—and what it means for global markets.
Why Is South Korea Comparing the U.S. Trade Deal to the 1997 Financial Crisis?
President Lee’s administration has raised red flags about the proposed $350 billion investment agreement with the U.S., arguing that without a currency swap mechanism, sudden capital outflows could destabilize Korea’s economy. "Pulling $350 billion in cash reserves and funneling it into U.S. projects under Washington’s terms WOULD mirror the liquidity crunch we faced in 1997," Lee told Reuters. The Asian Financial Crisis of 1997 saw Korea’s foreign reserves plummet, forcing an IMF bailout. This time, Seoul insists on safeguards—but the U.S. wants unfettered control over fund allocation.
What’s the Sticking Point in the Negotiations?
Talks froze in July 2025 over two key issues:and. The U.S. demands unilateral authority to direct Korean capital toward projects like semiconductor plants or infrastructure, while Seoul insists on commercial viability assessments. "We won’t be another Japan," Lee emphasized, referencing Tokyo’s 2025 deal that accepted U.S. tariff terms. Commerce Secretary Howard Lutnick’s ultimatum—"Pay tariffs or follow Japan’s path"—has only hardened Seoul’s stance.
How Did the Hyundai Raid Inflame Tensions?
A federal raid on a Hyundai battery plant in Georgia escalated diplomatic friction. Over 300 Korean workers were detained for immigration violations, with images of shackled employees sparking outrage. While the U.S. apologized, the incident has made Korean firms wary of stateside investments. "This wasn’t intentional, but it’s a wake-up call," Lee admitted, noting Trump’s offer to let workers stay. The raid underscores broader trade frustrations—talks aren’t even on Lee’s UN visit agenda.
Is the U.S.-Korea Alliance at Risk?
Despite clashes, Lee maintains the alliance will endure: "Between blood allies, rationality prevails." But differences run deep. South Korea lacks Japan’s $820 billion forex reserves or yen’s global role, making it more vulnerable to U.S. demands. Meanwhile, Trump’s team insists foreign governments "pay" tariffs—a technical fiction since U.S. importers foot the bill. "We need peaceful coexistence, not ultimatums," Lee stressed, hinting at Seoul’s delicate position between the U.S.-Japan bloc and China-Russia axis.
What’s Next for the Trade Standoff?
Seoul has proposed a currency swap line to mitigate risks, but Washington’s response remains unclear. Analysts at BTCC note that without compromise, Korea faces a lose-lose: either capitulate to U.S. terms or absorb punitive tariffs. With Lee’s approval ratings dipping, his New York speech will test whether "democratic Korea" can negotiate from strength—or if 1997’s ghosts will return.
FAQs
What triggered South Korea’s 1997 financial crisis?
The 1997 crisis stemmed from rapid foreign debt accumulation, currency devaluation, and depleted reserves, forcing Korea to seek a $58 billion IMF bailout.
How does Japan’s 2025 trade deal differ from Korea’s proposal?
Japan accepted U.S. control over investment allocations and tariff reductions, whereas Korea demands commercial safeguards and currency swaps.
Why are currency swaps critical for South Korea?
Swaps provide emergency dollar liquidity, preventing sudden reserve drains like in 1997. Korea’s $410 billion reserves are half Japan’s, leaving it more exposed.
