Why South Korea cannot make the same US trade deal as Japan

Core Viewpoint - South Korea's negotiations with the U.S. on a trade deal to lower tariffs have stalled due to concerns over the foreign exchange implications of a $350 billion investment fund [1] Group 1: Trade Deal Context - South Korean officials argue that the investment package would primarily consist of loans and guarantees rather than direct investments, which they cannot accept under terms similar to Japan's $550 billion investment package [2] - The U.S. has stated that there will be no flexibility for South Korea, emphasizing that they must either accept the deal or face tariffs [3] Group 2: Currency Market Concerns - There are worries that the dollar demand resulting from the investment deal will overwhelm the domestic currency market, potentially depressing the won [4] - South Korea's daily average global won trade was $142 billion in 2022, significantly lower than Japan's $1.25 trillion for the yen, indicating a smaller market share for the won [5] Group 3: Economic Implications - The won reached a 15-year low at approximately 1,476 to the dollar at the end of last year and is currently around 1,390, with market participants noting that the state pension fund's $40 billion annual overseas investment requirement is a burden on the currency [6] - South Korea's economy is smaller than Japan's, with a current account surplus of $99 billion last year compared to Japan's nearly $200 billion, and foreign reserves of $416 billion versus Japan's $1.3 trillion [7]