[Insight & Opinion] If Forced to Choose Black or White, a 25% Tariff Is the Answer

Howard Lutnick, the U.S. Secretary of Commerce, stated, "Korea must either accept the U.S. proposal or pay the tariffs. It's black or white." This remark is reminiscent of the famous anecdote during the Pacific War, when Japanese General Tomoyuki Yamashita pressured British General Arthur Percival to surrender before the fall of Singapore on February 15, 1942, asking, "Yes or no?" However, in the trade negotiations of 2025, there are no victors or losers. Therefore, Korea is not in a situation where it must answer "yes (white)."

President Donald Trump has imposed reciprocal tariffs on countries around the world, but has uniquely demanded a "signing bonus" only from the European Union, Japan, and Korea. In an interview with CNBC on August 6, President Trump described this unusual investment agreement as a "signing bonus" or "gift"-similar to the upfront payments given to players in Major League Baseball, separate from their salary contracts-and referred to it as "seed money." Notably, President Trump demanded that Japan and Korea each provide $550 billion and $350 billion, respectively, as an upfront payment as a signing bonus for concluding the agreement.

What is President Trump's intention behind this extraordinary demand? The United States is not only the world's key currency issuer but also the top recipient of foreign direct investment, so there is no reason to pressure Japan and Korea for investment due to a lack of funds. It can be speculated that President Trump aims to create a so-called "National Economic Security Fund" to pursue projects that are too risky to be justified by business investment or government fiscal spending, but could become monumental achievements that no previous president has accomplished.

More than two and a half months have passed since the announcement of the Korea-U.S. trade agreement on July 31, yet both countries remain at an impasse over the $350 billion investment issue. After returning from negotiations in the U.S. on October 6, the Minister of Trade, Industry, and Energy stated that while the U.S. government showed considerable understanding of Korea's difficulties in securing foreign currency, there has been no fundamental change in their position, and no meaningful response to the request for an unlimited currency swap.

If Secretary Lutnick insists on a "black or white" choice, the Korean government can only choose "black," meaning high tariffs. First, the demand for an upfront payment of $350 billion-17.5 times the normal annual financing capacity of $20 billion and equivalent to 89% of Korea's foreign reserves-would drive the Korean economy into a foreign exchange crisis. Second, according to a poll conducted by Realmeter, 80% of the public responded that the demand for a $350 billion upfront payment is unreasonable, while only 12.4% said it was acceptable. This result shows that the government cannot politically afford to make such a payment.

Third, Ryusei Akazawa, Japan's Minister for Economic Revitalization, stated that Japan's actual investment amounts to only 1-2% of the $550 billion, with the remainder being loans or loan guarantees. If this statement is true, the Trump administration's demand for a $350 billion upfront payment from the Korean government is nothing short of diplomatic exploitation.

At the National Assembly audit on the 13th, Minister of Foreign Affairs Cho Hyun revealed that the U.S. had proposed a new alternative. If the new U.S. proposal significantly lowers the proportion of cash investment demanded as an upfront payment to a level that the Korean government can bear without risking a foreign exchange crisis, the best possible agreement may be reached. However, if there is no adjustment to the $350 billion upfront payment, the government should choose a 25% tariff rate. While this will likely result in difficulties such as reduced exports due to high tariff retaliation, such pain is unavoidable in the interest of national benefit and must be endured.

Kim Dongwon, Former Visiting Professor at Korea University