Trade tensions between South Korea and the United States are approaching a boiling point, as a dispute over a massive $350 billion investment fund threatens to unravel key elements of a hard-won bilateral trade deal. The disagreement, which centers on the fund’s structure and the economic realities facing both nations, has left automakers, government officials, and investors on edge, with ripple effects already being felt across the Pacific.
On September 9, 2025, a top South Korean official issued a stark warning: unless the two countries can resolve their differences over how to deploy the investment fund—a central plank of their late July trade pact—core aspects of the agreement could collapse. The warning comes at a particularly sensitive time, as relations have already been strained by the fallout from a recent ICE raid at a Hyundai-linked battery plant in Georgia, where South Korean workers were detained and images of them in shackles sparked outrage back home. According to Axios, this incident prompted South Korea’s foreign minister to travel to the U.S. for urgent talks.
The trade agreement, signed in late July 2025, was heralded as a breakthrough, promising to lower tariffs on South Korean-made cars and other goods while committing South Korea to a $350 billion investment in U.S. industries such as shipbuilding. The U.S. described the fund as being modeled after a $550 billion deal with Japan, which gives President Trump significant leverage to select which projects receive funding and how capital is deployed. But the devil, as always, is in the details—and those details have proven to be a major sticking point.
South Korea’s delegation arrived in Washington, D.C. during the week of September 9 to negotiate with the U.S. Department of Commerce and the United States Trade Representative. The core of the dispute, as reported by Yonhap and Bloomberg, is whether the investment fund should consist of direct investments or primarily loan guarantees. South Korean officials argue that the U.S. push for a Japan-style arrangement is not only unreasonable but potentially destabilizing for their economy.
“Without an agreement, it will be difficult for the (shipbuilding) project to even get off the ground,” Kim Yong-beom, director of national policy in the South Korean presidential office, said at a public event, as quoted by Axios. He emphasized, “The circumstances facing South Korea and Japan are fundamentally different.”
The U.S.-Japan agreement, which serves as the U.S. template, is notably stringent. According to Reuters, Japan must execute $550 billion in investments by January 2029, with the U.S. Commerce Secretary, Howard Lutnick, chairing the investment advisory committee. Once President Trump approves a project, Japan is required to raise the necessary funds within 45 days. Profits are split evenly at first, but after the principal is recovered, the U.S. claims a whopping 90% of future profits. This method, South Korean officials say, is simply not feasible for their country.
“Although the scale of trade surplus with the U.S. might be similar for Korea and Japan, the economic situations are vastly different. We absolutely cannot sign such terms,” Kim Yong-beom explained during a Korea Broadcasting Journalists Club debate, as reported by The Korea Economic Daily. He added, “We are explaining to the U.S. side that it’s difficult for the Export-Import Bank of Korea or the Korea Development Bank to raise more than $20-30 billion in a year. We are discussing with the U.S. how to mitigate the impact on the foreign exchange market as we proceed with investments, but the negotiations are quite deadlocked.”
The numbers back up South Korea’s concerns. The proposed $350 billion investment amounts to a staggering 83.3% of South Korea’s $420 billion in foreign exchange reserves. In contrast, Japan’s $550 billion obligation is only 41.6% of its $1.32 trillion reserves. As noted by Jang Sang-sik, director of the Institute for International Trade at the Korea International Trade Association, “Japan seems to have accepted quite unreasonable conditions, perhaps due to urgency in reducing auto tariffs. The Korean trade team is now in an awkward position, as they cannot accept the U.S. demands.”
The stakes are high for South Korean automakers such as Hyundai and Kia. Until the tariff negotiations are resolved, these companies must contend with a 25% export tariff to the U.S.—a full 10 percentage points higher than what Japanese and German competitors pay. This price disadvantage is already impacting sales: data from the Korea International Trade Association shows that Korea’s cumulative auto exports to the U.S. from January to July 2025 fell by 15.1% to about $18.2 billion compared to the same period last year.
“In the U.S. auto market, where various products compete, an increase in consumer prices directly leads to a decrease in market share. Until now, export companies have managed by internalizing tariffs, but this will be difficult in the second half of the year,” a government official told The Korea Economic Daily. The European Union, meanwhile, has already completed preliminary measures to reduce auto tariffs, further raising the competitive pressure on Korean manufacturers.
The trade deal’s other major provision—lowering mutual tariffs from 25% to 15%—remains in limbo. Both sides had agreed to the reduction, contingent on South Korea executing the $350 billion investment and purchasing $100 billion in U.S. energy. However, as of September 9, 2025, the tariff cuts have not been enacted by executive order, leaving Korean exporters in a holding pattern.
Foreign Minister Cho Hyun echoed these frustrations before the National Assembly’s Foreign Affairs and Unification Committee, stating, “The negotiations are being delayed because we are strongly expressing to the U.S. what we cannot accept.” The prolonged deadlock is causing anxiety among South Korean industries, which are already shouldering the burden of higher tariffs and shrinking exports.
As the two allies struggle to find common ground, the broader implications for their economic and diplomatic relationship loom large. The outcome of these negotiations could determine not only the future of the shipbuilding and automotive sectors but also the overall trajectory of U.S.-Korea trade ties for years to come. With both sides digging in and neither willing to blink, the world is watching to see who will make the next move.
For now, the fate of the $350 billion fund—and the trade deal itself—hangs in the balance, with the potential to reshape the landscape of global trade and industry in ways that few could have imagined just a few months ago.
