South Korea Warns of 1997 Crisis if US Trade Demands Met

The President of South Korea recently expressed grave concerns about the potential economic fallout if the government were to accept the current demands from the United States in the stalled trade negotiations without any safeguards. The President warned that such a move could plunge the South Korean economy into a crisis similar to the one experienced in 1997. This statement underscores the delicate balance that South Korea must maintain in its trade relations with the United States, as unconditional acceptance of demands could lead to severe financial instability.

In July, Seoul and Washington reached a verbal agreement on a trade deal. The United States agreed to lower tariffs on South Korean goods in exchange for 3500 billion dollars in investment from South Korea, along with other measures. However, the agreement has not been formalized due to disagreements over how to handle the investment. The President emphasized that without a currency swap, if South Korea were to withdraw 3500 billion dollars in cash as per the United States' demands, it would face a situation similar to the 1997 financial crisis.

The President also discussed the recent raid on a Hyundai Motor factory in Georgia by U.S. authorities, which resulted in the arrest of over 300 South Korean workers. While the President praised the handling of the situation by the U.S. administration, they also expressed concern about the "harsh" treatment of the workers, which could deter South Korean companies from investing in the United States. However, the President clarified that this incident would not jeopardize the bilateral alliance and commended the U.S. administration for proposing to allow the workers to stay.

The President's office stated that there are no plans for a meeting with the U.S. President during the upcoming United Nations General Assembly in New York, and trade negotiations are not on the agenda for this visit. The U.S. Commerce Secretary had previously suggested that South Korea should follow the agreement reached between Japan and the United States. The President responded by expressing confidence that a minimum level of rationality would be maintained between allies.

To mitigate the impact of the 3500 billion dollars investment on the domestic market, the South Korean government proposed a currency swap with the United States. However, the President did not specify the likelihood of the United States agreeing to this proposal or whether it would be sufficient to finalize the agreement. The President noted that unlike Japan, which has foreign exchange reserves more than double that of South Korea and a currency that is internationally recognized with a swap line with the United States, South Korea faces different challenges.

The President acknowledged that while both Seoul and Washington have agreed in writing that any investment project must be commercially viable, reaching a detailed agreement on this has proven difficult. The President stated that the current focus is on reaching a detailed agreement that ensures commercial viability, but this remains the biggest obstacle. The President also noted that suggestions made during working-level talks did not guarantee commercial viability, making it difficult to bridge the gap.

The President also addressed the U.S. administration's stance that these investments would be "selected" and controlled by the U.S., giving Washington discretion over where the investments are made. However, the President's policy advisor had previously stated that South Korea has implemented a safety mechanism to reduce financing risks, focusing on supporting commercially viable projects rather than providing unconditional funding.

When asked if the negotiations would continue into the next year, the President stated that the current unstable situation should be resolved as soon as possible. The President's remarks highlight the complex nature of the trade negotiations and the need for a balanced approach that protects South Korea's economic interests while addressing the concerns of the United States. The reference to the 1997 financial crisis serves as a stark reminder of the potential risks involved in making unconditional concessions in trade negotiations.