South Korean President Lee Jae-Myung has issued one of his most urgent economic warnings in recent memory. As of late September 2025 he has made clear that the trade deal under negotiation with the U.S.—which would lower certain U.S. tariffs in exchange for large-scale South Korean investment—carries serious risks unless specific safeguards are included. Lee cautions that accepting the current U.S. investment demands without safeguards could lead to a financial crisis not unlike that of 1997.
Here is what is known so far, what is being demanded, what Lee is warning about, what might happen, and what broader lessons this holds for international trade and regional economic stability.
What the U.S. is Demanding & What the Deal Looks Like
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In July 2025, Seoul and Washington reached a verbal agreement in principle. Under that deal the U.S. would reduce certain tariffs on South Korean goods. In return South Korea would commit to $350 billion in investment in the U.S. over some period.
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The investment demand is large and involves cash injections or financial commitments from Seoul to the U.S. side. Lee’s administration is worried about how the investment would be handled—whether it would be managed in ways that expose Korea to large short-term financial risk.
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In addition to questions around investment, there are concerns about duties, tariff rates—especially those placed during earlier policies—and the mutual expectations on opening market access for U.S. industries, possibly including auto, agriculture, services, and tech.
Lee’s Warning: What Could Go Wrong
Lee Jae-Myung has been explicit about what he sees as potential outcomes if the agreement goes forward in its current demand-driven form:
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Financial Crisis Similar to 1997
The 1997 Asian financial crisis was triggered by overleveraged economies, sudden capital flight, weak foreign exchange reserves, and speculative pressures. Lee warns that if $350 billion in cash or equivalent investment is required in the U.S., and if Korea must withdraw that capital or otherwise face foreign exchange pressures without a currency swap or other buffer, the situation could spiral.
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Foreign Exchange Market Instability
Lee has signaled that ongoing negotiations are already causing concern in South Korea’s foreign exchange markets. Currency traders are watching closely. He has called for mechanisms like a currency swap agreement with the U.S. to mitigate sharp drops in the won or rapid capital outflows. Without such protections, sudden shifts in investor sentiment or external shocks (e.g., a downturn in demand for South Korean exports) could worsen the instability.
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Risks to Export‐Driven Industries
Much of South Korea’s economic strength depends on exporting electronics, semiconductors, automobiles, and other high-value goods. If cost structures rise (due to tariff imbalances, investment outflows, or unfavorable currency moves), competitiveness could weaken. Enforcement of U.S. regulatory demands or market opening in certain sensitive sectors may force Korean industries to make tough trade-offs.
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Sovereignty and Control Over Investment Outflows
Lee has objected to parts of the U.S. demand that may limit control over how and where investment from Korea is used, or force Korean companies or state entities into terms that might undermine long-term objectives. There is also concern about visa and labor issues for Korean workers in the U.S., especially in light of a recent U.S. immigration raid at a Hyundai battery plant in Georgia which detained hundreds of Korean nationals.
What Lee Wants: Safeguards and Conditions
To avoid what he defines as potential disaster, President Lee and his government are insisting on several safeguards. Among them:
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A currency swap agreement with the U.S. This would let Korea tap into U.S. dollars or other reserve currencies in case the won loses value sharply or in the event of outflows. Lee argues this is essential to forestall a crisis.
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Clear rules on how the investment fund is structured: how much is cash versus equity, how decisions are made, what the risks are, timelines, and how capital is moved. Seoul is pushing back against demands that seem open-ended or exposing Korea to sudden large outflows without protections.
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Assurances around labor, visa, and immigration policy so that Korean workers are treated fairly when involved in U.S. projects related to the investment. The Hyundai battery plant raid has added urgency to these concerns, because it has shaken investor confidence.
How This Compares to Past Crises
Understanding Lee’s reference to 1997 helps clarify what Koreans and regional watchers fear:
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In 1997-98, South Korea (like others in Asia) was hit by speculative attacks on currency, loss of foreign capital, and debt rollover risks. Weak financial oversight, insufficient foreign reserves, and large short-term foreign borrowing exposed the economy. Once the capital started fleeing, the crisis escalated quickly.
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Lee is arguing that if Korea is obligated to commit huge sums to foreign investment but does not maintain sufficient buffers, if there is no mechanism to stabilize exchange rates, or if capital flows are one-way, then some of those same vulnerabilities are reactivated.
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In addition, global conditions have some echoes: rising protectionism, disruptions in supply chains, inflation, energy costs, geopolitical risk. All of these make the external environment less forgiving than in past decades.
Risks If Things Go Wrong
If President Lee’s concerns are not addressed, the following scenarios could unfold:
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Currency Depreciation & Inflation
If the won weakens substantially due to capital flight or investor panic, importing machinery, energy, food, etc., gets more expensive. Price inflation could follow, squeezing households, especially lower-income ones.
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Foreign Exchange Reserve Depletion
To defend the currency or to meet investment obligations, Korea might have to draw down reserves. If reserves get low, that limits flexibility to respond to external shocks.
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Credit Rating Impact
If global or U.S. investors view Korea as overly exposed, or if debt obligations become riskier, credit rating agencies might downgrade Korea. That makes all borrowing more expensive domestically and internationally.
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Exports Lose Edge
Higher production costs, weaker currency volatility, or increased tariff burdens might make Korean exports less competitive. Companies may lose market share in key arenas like semiconductors, electronics, cars.
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Political & Social Backlash
Large scale economic distress tends to lead to social stress. If households face higher prices, unemployment rises, or industries suffer, Lee’s government could face public dissatisfaction. The negotiation itself becomes politically charged.
Why Both Seoul and Washington Are Pressing Hard
Why is the U.S. demanding so much? And why is Korea being pushed?
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For the U.S., the logic includes reciprocal trade policy: making countries that benefit from U.S. imports equally open to U.S. exports, channeling large foreign investments to U.S. soil, and shifting trade balances. The U.S. under Donald Trump has been pushing aggressive tariff policies under what’s being called “Liberation Day” tariffs, and setting up deals where countries reduce tariffs in exchange for investment commitments.
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For South Korea, there is a strong need to protect export industries and avoid retaliatory tariffs, maintain good access to U.S. markets, and avoid being penalized in the U.S. trade framework, which has been increasingly assertive. Trade with the U.S. is a big part of Korea’s economy.
Where Things Stand as of Late September 2025
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The trade deal is not finalized. Seoul and Washington agreed in principle in July, but many key details—especially around how the $350 billion investment fund is structured, what safeguards are included, what role Korean companies have, and how risk will be managed—are still being negotiated.
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The foreign exchange market in Korea is already showing signs of nervousness. Lee has explicitly said that negotiation turbulence is “worrying FX markets.”
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There are also related diplomatic and legal issues: the visa and labor treatment of Korean workers in the U.S., the recent Hyundai plant immigration raid, and how those are perceived by both investors and the South Korean public. These are not just technicalities. They impact feelings of trust, fairness, and willingness of Korean firms to commit.
What Seoul Could Do, and What Both Sides Should Consider
To avoid worst-case outcomes, there are paths forward:
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Include a Strong Currency Swap Agreement
A formal agreement allowing Korea to tap into U.S. dollar or other reserve facilities in times of strain would reassure markets and reduce risk of sharp currency depreciation. This is one of Lee’s core demands.
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Define the Investment Fund Structure Transparently
Rather than an open-ended cash requirement or loosely defined fund, Seoul needs clarity on how money is invested, who controls it, what returns or losses might occur, and what governance mechanisms will exist. This includes caps, phased investments, protections for downside risk.
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Ensure Reciprocity on Labor, Immigration, and Regulatory Policies
If Korean workers are to participate in U.S. investments, there must be fair visa arrangements and treatment. If U.S. companies gain access to Korean markets, there must be predictable, stable regulations. These non-tariff issues often matter as much as tariff rates.
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Build Buffer in Foreign Exchange Reserves
Korea should ensure adequate reserves to manage sudden outflows or exchange rate pressures. Experts often point out that being under-reserved during a crisis magnifies other risks.
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Avoid Overdependence on Export-oriented Gains at the Expense of Domestic Stability
It may be tempting to focus on export gains and trade advantages, but if domestic industries, wage growth, cost of living, and social safety nets suffer, the domestic fallout could be severe. Balancing global competitiveness with domestic resilience is crucial.
Broader Implications for Asia & the Global Economy
Lee’s warning does not only affect South Korea. It reflects larger global trends:
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Many countries that are export-oriented and depend heavily on international supply chains live under the risk that foreign trade partners will impose demands that expose them to financial swing risks.
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As U.S. trade policy under the current administration grows more aggressive, “reciprocity” and investment-leverage are being used as bargaining chips. Countries may find themselves forced to trade financial risk for tariff relief.
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In Asia, where many economies operate with high exports and require large amounts of foreign capital or dependency, this could stoke regional instability. Investors, rating agencies, and currency markets will watch governments’ responses closely.
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The political dimension is also strong. Decisions on how to structure deals like this have ramifications for sovereignty, public trust, and long-term economic planning.
Conclusion: Crossroads for South Korea
President Lee Jae-Myung is sounding the alarm not because he is opposed to trade or foreign investment. He recognizes the potential benefits of securing better access to U.S. markets and lowering trade barriers. But his warning is that without careful structuring, without safeguards, the demands currently being put forward could do more harm than good.
There remains a window for compromise. If Seoul and Washington can negotiate terms that balance the U.S. goals (tariff relief, market access, investment) with protection for South Korea’s financial stability, labor welfare, and sovereignty, the deal could become a model of modern trade deal diplomacy. If not, the risks Lee points to—currency instability, capital flight, inflation, economic contraction—are very real.