[Inside Chodong] The Conditions for a $350 Billion Investment

South Korea and the United States are struggling to find a breakthrough in their tariff negotiations. The main sticking point is the method of funding: the United States is demanding the entire $350 billion be invested in cash, while South Korea is insisting on loans and guarantees, which are indirect investment methods with lower principal recovery risk. This deadlock is prolonging the negotiations. The United States also wants to retain all decision-making authority over investment destinations and profit distribution.

Investing $350 billion in cash is virtually impossible. This amount is equivalent to 84% of South Korea's foreign exchange reserves. If this money were to be invested during the remaining three years of President Donald Trump's term, as the United States demands, more than $116 billion in foreign currency would be needed each year. However, the amount South Korea can actually raise is only about $20 billion annually. If the entire foreign exchange reserves were handed over to the United States at once, South Korea could face a currency crisis. Foreign exchange reserves are emergency funds that can be independently used to stabilize the market in times of crisis, not assets intended for large-scale international investments. Currently, South Korea's foreign exchange reserves are even below the appropriate level recommended by the International Monetary Fund (IMF).

If an unlimited currency swap agreement were in place, allowing South Korea to use its won as collateral to borrow dollars as needed, the situation might be different. This would mean that dollars, which are usually supplied only in times of crisis, could be accessed at any time for investments in the United States. For such long-term funding-ranging from a few years to several decades-the Federal Reserve would need to go beyond its legal mandate and allow swaps specifically to support investments. It would also need to permit the use of short-term maturities of one to three months as long-term investment funds. While it is unlikely that the United States will accept the South Korean government's request, even if it did, a currency swap alone would not solve all the problems.

If South Korea is forced to provide the funds unilaterally, while being stripped of decision-making authority over investment destinations or profit distribution, then an unlimited currency swap agreement would be meaningless. In effect, it would be like paying $350 billion just to secure the swap line. If funds are invested in highly uncertain projects and the recovery of principal and interest is endlessly delayed, South Korea's foreign currency liquidity could deteriorate rapidly. Whenever there is a problem with dollar liquidity, South Korea would have to continually turn to the United States for help. Ultimately, the key is that, along with opening a swap line, the "commercial rationality" demanded by the government must be satisfied. If the United States continues to insist on full upfront payment, it could lead to an extreme outcome where both sides lose.

The prolonged deadlock is not advantageous for the United States either. With the trade war with China-the main negotiating counterpart-entering a protracted phase, the United States cannot afford to focus all its resources solely on South Korea. Considering the upcoming midterm elections, dragging out negotiations with an ally is a significant burden. Given the mutual interests involved, such as cooperation in the shipbuilding industry, it is highly likely that, at some point, both sides will reach a broad agreement that accepts the United States' demands to some extent. The South Korean side needs to respond by minimizing actual losses in detailed clauses, such as reducing the cash portion and rationally adjusting profit distribution, while offering President Trump a card he can present as a domestic achievement.