South Korea is facing a moment of high-stakes diplomacy and economic uncertainty as President Lee Jae Myung warned that the U.S. demand for a $350 billion cash investment could tip Asia’s fourth-largest economy into a crisis reminiscent of the 1997 financial meltdown. In a frank interview with Reuters on September 19, 2025, Lee emphasized the gravity of the situation, saying, “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.”
The roots of this tension go back to July 2025, when Seoul and Washington verbally reached a trade agreement. The deal, as outlined by both governments, would see the U.S. lower tariffs on South Korean goods in exchange for a massive $350 billion investment from South Korea. While the framework was agreed upon, the devil is in the details—and those details are proving stubbornly elusive.
According to Reuters, both sides have committed in writing that any investment projects must be commercially viable. Yet President Lee was candid about the difficulty of hammering out specifics. “Reaching detailed agreements that guarantee commercial reasonableness is now the central task—yet it also remains the biggest obstacle,” he explained. He further noted that the proposals on the table during working-level talks offer no assurance of commercial viability, making it hard to bridge the gap between the two allies.
Lee’s concerns are not merely theoretical. The memory of the 1997 Asian financial crisis, which saw South Korea’s economy battered and its reserves depleted, still looms large in the national consciousness. Lee pointed out that, unlike Japan—which recently struck a similar deal with the U.S.—South Korea has less than half the foreign exchange reserves and lacks a swap line with Washington. “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.
To mitigate the potential shock to the Korean won and local markets, Seoul has proposed a foreign exchange swap line with the U.S. But as of now, there’s no indication from Washington that such a safety net will be put in place. Lee did not address how likely the U.S. was to agree or whether that would be enough for the deal to go forward, leaving the future of the agreement hanging in the balance.
Despite the mounting uncertainty, Lee has tried to keep lines of communication open and emphasized the importance of rationality between the two countries. “I believe that between blood allies, we will be able to maintain the minimum amount of rationality,” he said, underscoring his hope that the unstable situation could be resolved soon—ideally before the end of 2025.
The economic wrangling comes at a time of heightened sensitivity in the bilateral relationship, following a major U.S. immigration raid in early September at a Hyundai Motor-LG Energy Solution joint venture in Georgia. The raid resulted in the detention of over 300 South Korean workers, whose treatment—images of them in shackles circulated widely—sparked outrage in South Korea. President Lee was clear about the emotional impact: “South Koreans were naturally angered by the harsh treatment of the workers.” He warned that such incidents could make Korean companies wary of investing in the U.S.
However, Lee also praised former U.S. President Donald Trump for his response, noting, “I do not believe this was intentional, and the U.S. has apologized for this incident, and we have agreed to seek reasonable measures in this regard, and we are working on them.” He further clarified that he did not believe Trump directly ordered the raid, attributing it instead to “overzealous law enforcement.”
As for the ongoing trade talks, U.S. Commerce Secretary Howard Lutnick has reportedly urged South Korea to follow Japan’s example: either accept the deal or pay the tariffs. But Lee’s advisers have insisted on including safety mechanisms to reduce financial risk, such as supporting only commercially feasible projects rather than providing unconditional financial backing. Trump, for his part, has said the investments will be “selected” by him and controlled by the U.S., giving Washington broad discretion over how the funds are allocated.
Amid these economic and diplomatic challenges, Lee is also navigating a tense regional security landscape. He has sought to reduce hostilities with North Korea, but prospects for dialogue appear dim. On September 21, 2025, North Korean leader Kim Jong Un declared he had “no intention of ever resuming dialogue with South Korea,” as reported by Yonhap. Lee admitted he was not optimistic about inter-Korean talks, nor did he believe North Korea was engaging in meaningful conversations with Washington. “It is our judgement that they are not engaging in concrete conversations,” he told Reuters.
Lee also highlighted the growing cooperation between North Korea, Russia, and China—an alignment that increases the risk of confrontation on the Korean peninsula. He described the situation as “a very dangerous situation for Korea,” warning that the country’s geography puts it on the frontline of any conflict between the democratic and socialist camps. “We must find an exit ramp out of the escalating military tensions,” Lee said, advocating for dialogue and peaceful coexistence over simplistic responses to complex threats.
Lee’s diplomatic calendar is packed. On September 22, 2025, he departed Seoul for New York to attend the United Nations General Assembly, where he is scheduled to deliver a keynote address and—making history—chair a Security Council meeting as the first South Korean president to do so. During his speech at the UN, Lee is expected to address nuclear tensions on the Korean Peninsula and call on North Korea to return to the negotiating table.
Despite the flurry of international activity, South Korea’s Presidential Office has made it clear that there are no plans for Lee to meet with former President Trump in New York, nor are the trade talks on the agenda for this visit. The message is unmistakable: while the alliance endures, the path forward is anything but simple.
As Lee Jae Myung steps onto the world stage in New York, the stakes for South Korea—economically and diplomatically—could hardly be higher. The coming months will test the resilience of the U.S.-South Korea alliance, the ingenuity of its leaders, and the nerves of a nation still haunted by the ghosts of crises past.
