Trump’s Trade Deal With South Korea On The Rocks As Lutnick Seeks More Cash

A little over a month ago, we joked that Trump was throwing around such ridiculous trade deal numbers – investments in the hundreds of billions if not trillions from countries for whom said promises were multiples of their GDP…

that’s 6x Qatar’s GDP https://t.co/2ZHYwkp2tW

— zerohedge (@zerohedge) May 14, 2025

… the while impressive sounding, the while house of trade cards would crumble the moment someone does anything more than cursory due diligence, or merely peeks behind the curtain to try to understand what was just signed. 

It appears that South Korea just peeked. 

According to the WSJ, Trump’s trade deal with South Korea – announced with so much fanfare – is on shaky ground, with Commerce Secretary Howard Lutnick taking a tough line in talks as some Seoul officials privately argue to allies that the White House is moving the goal posts.

As a reminder, in late July Trump said the U.S. had agreed to lower South Korea’s reciprocal tariffs, plus levies on autos, to 15% from a proposed 25%. In exchange, South Korea pledged $350 billion in U.S. investments, plus another $100 billion in American energy purchases.

Well, it appears that Trump is altering the deal (and pray he doesn’t alter it further). Lutnick, in recent conversations with South Korean officials, has discussed with Seoul the idea of increasing the $350 billion they had previously guaranteed to the U.S. in July and suggested the final tally could get closer to the $550 billion pledged by Japan.

Furthermore, the commerce secretary has also told South Korean officials in private that Trump is looking for more of the funding to be provided in cash rather than loans, a recurring joke by those who first pointed out that the deal is, in a word, ridiculous as the $350BN represents a fifth of the country’s entire gross domestic product. 

According to the WSJ, the fate of the Trump administration’s trade pact with South Korea represents a key barometer for the U.S.’s broader tariff dealmaking with dozens of countries. Many of those deals, including the one with Seoul, have been verbal, not signed, agreements. That has left a gulf between the U.S. and some of its key trading partners over what it would take to cross the finish line.

A rather naive take came from a White House official who told the WSJ that while the U.S. is working to fine-tune its agreement with South Korea, the administration isn’t asking for anything that would represent a “dramatic departure” from what was already agreed upon. Full details of that framework haven’t been disclosed. 

Meanwhile, Korea is starting to sour on the deal with the country’s biggest daily, the Chosun publishing an article that “South Korea better with 25% tariff than 15% plus $350 billion.“

The good news is that so far at least the cracks in the deal haven’t spilled over diplomatically: Treasury Secretary Scott Bessent reaffirmed to President Lee Jae Myung on Wednesday the strong economic and security ties between the U.S. and South Korea on the sidelines of the United Nations General Assembly, according to a Treasury spokesperson. Lee expressed hope for a “commercially reasonable” agreement, a top Seoul official said.

South Korea is closely watched because its trade accord closely mirrors that of neighboring Japan, which, along with the U.K., represents one of the few deals officially signed by both countries. A close ally of Washington and home to America’s largest overseas U.S. military base, South Korea was pegged by the Trump administration to be among the first major trade-deal targets, alongside Australia, India, Japan and the U.K.

But at home, South Korean officials are facing tougher political pressure to not give too much ground, with the public still irked over the immigration raid this month at a Hyundai Motor complex in Georgia that resulted in the arrest of more than 300 South Koreans (whose visas were improper as we subsequently learned as the company had “cut corners” on US visas instead of hiring domestic US workers). All but one of the detained Koreans have since returned home. 

Washington’s ability to close a deal with Seoul could offer Trump much-needed momentum to complete others. But inaction could relieve negotiating pressure on trading partners, who have bristled at the steep asking price and await clarity on the legal issues swirling around Trump’s proposed tariffs.

Trump said on social media at the time he would select the projects funded by South Korea, with his administration controlling how the money is distributed. He offered no further details on the deal’s structure. Officials in Seoul almost immediately disputed Trump’s assertion.

Lutnick had been pushing the South Koreans to sign a deal more aligned with Japan’s agreement, particularly around the enormous investment funds pledged to the U.S. in exchange for tariff relief, according to WSJ sources. 

Japan has earmarked $550 billion for U.S. investment projects as part of a memorandum of understanding signed earlier this month. A committee led by Lutnick will make recommendations to Trump on which projects to pursue, and the U.S. stands to reap 90% of the profits from each investment after Japan has recouped its original outlay. By agreeing to those terms, Tokyo saw its lower 15% auto tariff take effect earlier this month, down from the prior 27.5%. That puts Japan among the countries that have seen a crucial reduction from Trump’s proposed auto tariffs.

Lutnick has made clear that, while South Korea is unlikely to come substantially closer to Japan’s $550 billion figure, in his view Seoul must agree to many of the same terms arranged with Japan. Lutnick doesn’t want to give the impression the administration is offering a dramatically different deal structure to South Korea. That reflects a concern that doing so could undermine the signed U.S. agreement with Japan (which is a document that isn’t legally binding).

Lutnick never demanded a total payment of $550 billion from South Korea, according to a spokesman from South Korea’s Ministry of Trade, Industry and Economy, which handles trade talks with the U.S. He declined to comment further.

Still, behind the scenes the panic is palpable and suddenly the entire deal looks on the verge of collapse. In recent days, South Korea, through its embassy in Washington, D.C., has been dialing allies in Washington and warning them the Trump administration is trying to acquire last-minute concessions after the two sides had already come to a verbal agreement, according to a person familiar with the calls. 

The discussions between Lutnick and his South Korean counterparts have taken place as recently as this month in New York. In these recent talks with Washington, Seoul has sought to make clear it isn’t comparable to Tokyo. South Korea has stressed its economy, with a gross domestic product of roughly $1.8 trillion, is roughly two-fifths the size of Japan’s. 

Tokyo also has a currency-swap deal with Washington, which it can tap for U.S. dollars in a crisis. South Korea lacks such a foreign-exchange arrangement and would potentially need to liquidate U.S. dollar reserves to fund the $350 billion. That sum would swallow up more than 80% of South Korea’s current dollar reserves, potentially leaving it vulnerable in a financial emergency.

South Korean officials, including Lee, have recently said accepting the U.S. offer could trigger a financial crisis for the country. In fact, according to a Reuters report, South Korea now demands a Fed currency swap be implemented so the US can bailout Korea… after it makes its mandatory payments to the Trump admin! 

“Without a currency swap, if we were to withdraw $350 billion in the manner that the U.S. is demanding and to invest this all in cash in the U.S., South Korea would face a situation as it had in the 1997 financial crisis,” he said through a translator.

Lee, a liberal, took office in a June snap election after his conservative predecessor, Yoon Suk Yeol, was removed from office and jailed for briefly imposing martial law. Lee has sought to calm the country and its economy and said he plans to use his U.S. visit to tell the world that “democratic Korea is back”.

Lee met Trump for their first summit in August, saying he had built a strong personal tie with the U.S. leader, despite not agreeing on a joint statement or concrete announcement. 

Commerce Secretary Howard Lutnick has said South Korea should follow Japan’s deal with the United States. He said Seoul either needs to accept the deal or pay the tariffs, using the Trump administration’s depiction of foreign governments paying the levies, which are instead paid by U.S. importers. Lee, asked if he would walk away from the deal, said: “I believe that between blood allies, we will be able to maintain the minimum amount of rationality.”

South Korea has proposed a foreign exchange swap line with the U.S. to reduce the shock of the investments on the local market for the won currency. Lee did not address how likely the U.S. was to agree or whether that would be enough for the deal to go forward.

He said South Korea is different from Japan, which struck a trade deal with the U.S. in July. Tokyo has more than double South Korea’s $410 billion foreign exchange reserves, an international currency in the yen and a swap line with the United States, Lee said.

And once the incentives are aligned for South Korea to “have a crisis” to evade its tariff obligations, it will do just that… which means that it will be up to the Fed to not only rescue Seoul, but to indirectly pay the US treasury. 

Which may have been Trump’s plan all along.

“The devil is in the details,” Lutnick said. “The Koreans either accept that deal or pay the tariffs. Black and white.”

It increasingly appears they may just end up paying the tariffs.