Tariff Deal Unlikely Before APEC... Only a Presidential Decision Remains

Uncertain Resolution Before APEC
The Final Piece Handed Over to Summit Diplomacy

Although the Korea-U.S. tariff negotiations continued until the final stages of working-level discussions, a few remaining issues during the detailed coordination phase are blocking the conclusion of the talks. While the government avoided specifying the details, analysts believe that the main gap lies in the core issues of the "nature and speed of the money." Although described as just "one or two" issues, these are considered to be extremely significant.

According to diplomatic sources on October 24, the biggest issue is the "ratio of direct cash investment." Initially, the United States demanded that the entire $350 billion in investments pledged by Korea be made as "cash investment." However, after the Korean government strongly opposed this due to concerns about shocks to the foreign exchange market and burdens on companies, the U.S. is said to have partially retreated from this stance. Instead, the United States is now pressing for the "cash ratio to be maintained above a certain level," effectively pushing for substantial investment execution. In particular, there have been demands for Korea to directly invest about $200 billion in cash over eight years, at $25 billion annually, reflecting a strong emphasis on immediate fund execution.

The Korean government is maintaining its position to keep the direct cash investment ratio as low as possible and to extend the funding period. In particular, it is pursuing a structure in which public funds, such as policy finance, Export-Import Bank funds, and sovereign wealth fund contributions, are also recognized as investments. An official from the Ministry of Trade, Industry and Energy stated, "If we do not control the speed of dollar outflows, there will be direct pressure on the foreign exchange market," adding, "Our goal is to adjust both the quality and timing of the investment funds."

Another point of contention is the selection of investment destinations and the structure of profit distribution. The United States wants the right to determine investment destinations, aiming for direct benefits to its own industries. In particular, it is demanding that investments be concentrated in strategic sectors such as automobiles, batteries, and energy, arguing that Korean investment should contribute to strengthening the manufacturing base within the United States.

In response, the Korean government is emphasizing that "the participation of Korean companies in the selection process of investment destinations must be guaranteed." It is difficult to accept a structure in which all investment profits are recovered solely within the United States. Some in the industry have also raised concerns, stating, "If Korea remains only a simple investor, there will be no real benefit," and suggesting that "joint development or profit reinvestment structures should be specified."

The Korean negotiation team held last-minute talks on concrete figures during their recent visit to the United States but ultimately returned home without reaching a conclusion. Kim Yongbeom, Senior Presidential Secretary for Policy, said immediately upon his return, "There was progress on various issues, but the core one or two issues remain at an impasse," adding, "We are now at the stage of organizing the remaining tasks, and given the circumstances, additional face-to-face negotiations are difficult." This suggests that it is still too early to expect a breakthrough at the upcoming APEC summit.

Ultimately, what remains is a political decision at the summit level. Since further coordination at the working level is difficult, the outcome is likely to depend on what messages are exchanged between President Lee Jaemyung and U.S. President Donald Trump at their summit meeting.

A diplomatic source analyzed, "The United States sees these negotiations not simply as a matter of tariff reductions, but as a test of an ally's ability to fulfill its commitments," adding, "For President Trump, the calculation includes not only economic benefits but also political symbolism."

The Korean government is internally reviewing measures to minimize the impact of the negotiations on the industry. The position is that if large-scale cash investments become a reality, stabilization measures for the foreign exchange market will be necessary. Conversely, there are concerns that if tariff reductions are delayed, the price competitiveness of export industries may be weakened for the time being. An economic official stated, "Both the procurement of investment funds and tariff reductions must be achieved simultaneously for there to be a real effect," adding, "We need to focus on mid- to long-term structural changes rather than short-term market shocks."

Meanwhile, the possibility of an "security package" agreement, going beyond trade issues, is also being discussed in the bilateral negotiations. Reports indicate that increases in Korea-U.S. defense cost sharing and expanded "uranium enrichment and reprocessing rights" are on the table. These are measures to strengthen military and energy security cooperation for so-called alliance modernization.

In particular, the revision of the nuclear cooperation agreement, which Korea has requested, is premised on "securing enrichment and reprocessing capabilities for commercial and industrial purposes, not for nuclear armament," and it is known that the U.S. has agreed to this in principle.

As trade, investment, and security issues are being addressed together, this round of negotiations is being evaluated as a critical turning point that will determine the direction of Korea-U.S. relations, going far beyond simple tariff discussions.