Analysis-Korea's wobbles over US trade talks awaken the won bears

Core Viewpoint - South Korea's trade negotiations with the Trump administration are facing significant political uncertainties, leading to investor concerns about a potentially unfavorable deal or no deal at all [1]. Group 1: Currency and Economic Impact - The Korean won has fallen below the critical level of 1,400 to the dollar, indicating market fears and potential for further depreciation [1]. - President Lee Jae Myung indicated that South Korea would require a currency swap agreement with the U.S. if it agrees to invest $350 billion in the U.S., raising fears of a financial crisis similar to that of 1997 [2]. - KB Securities estimates that if South Korea channels $350 billion in direct investment to the U.S. without a currency swap, the won could depreciate by 100 won per dollar annually over the next three years [3]. Group 2: Trade Agreement Status - There is a deadlock between Seoul and Washington regarding the structure of a $350 billion investment fund, which is part of a broader trade deal that would cap tariffs on South Korean goods at 15% [5]. - If the trade deal is not finalized, South Korean imports could face tariffs as high as 25%, making them less competitive compared to goods from Japan and Europe, which would still face the agreed 15% tariffs [6]. Group 3: Historical Context and Current Challenges - The memories of the late 1990s foreign exchange crisis are influencing South Korean officials' reluctance to ease currency restrictions, despite some progress in making the won more globally accepted [7].