South Korean media: "Japan contributes 4,000 billion USD", the U.S. demands South Korea to establish an investment fund

Equal-scale tariff negotiations ... hundreds of trillions of won in huge funds, the government is troubled by the negotiations

According to a report on the 15th, the U.S. has requested the South Korean government to establish a large-scale investment fund to support the revitalization of American manufacturing. The U.S. has asked the South Korean government to lead the establishment of a "Manufacturing Cooperation Enhancement Fund" as a source of funding for South Korean companies building or expanding factories in the U.S., or investing in local enterprises. This request is not on the same level as previous measures taken by the U.S. government, such as opening up the market for agricultural and livestock products including beef and rice, and allowing Google to transmit precise map data back to the U.S., which aim to reduce trade barriers.

On the 15th, according to comprehensive interviews by this newspaper, during the recent South Korea-U.S. tariff negotiations held in Washington D.C. at the beginning of the month, the U.S. government proposed the establishment of the aforementioned fund. It is reported that the U.S. mentioned Japan's proposal for establishing an "investment fund for the U.S." during the Japan-U.S. tariff negotiations. According to reports, the scale of Japan's proposed fund is approximately 4,000 billion USD (about 550 trillion KRW). Given that the trade surplus of South Korea and Japan with the U.S. is similar, the U.S. has demanded that South Korea also establish a fund of the same scale.

Under the pressure of President Donald Trump's ultimatum on July 7 to Japan, South Korea, and others: "Imposing a 25% reciprocal tariff from August 1st," and pushing for negotiations, the public analysis suggests that Trump is making new demands on the South Korean government to obtain clear achievements that can be showcased domestically.

With only half a month left before the implementation of the reciprocal tariffs on August 1st, the South Korean government is struggling with how to raise funds for the astronomical fund, which exceeds 80% of the annual national budget. Previously, it was reported within the South Korean government that "the U.S. Commerce Secretary Howard Lutnick proposed an unacceptable proposal to South Korea, causing the negotiations to stall," which may refer to this demand by the U.S.

Establishing a fund ... Trump wants to use South Korean funds to develop manufacturing

It is reported that during the two high-level South Korea-U.S. trade negotiations held in Washington D.C. on July 7 and 10, the U.S. government first raised the requirement to establish a manufacturing enhancement fund. After two face-to-face meetings between the Director-General of the Department of Trade Negotiations at the Ministry of Trade, Industry and Energy, Yeo Han-gyeong, and the U.S. Commerce Secretary Howard Lutnick, they said: "We have discussed in depth the plan to enhance cooperation between the two countries' manufacturing sectors." A government official stated: "The South Korean government has prepared various schemes to reduce non-tariff barriers, including agricultural products, to minimize reciprocal tariffs and car tariffs, but Lutnick focused solely on the fund establishment scheme."

High-level trade talks

On the 14th, Yeo Han-gyeong held a press conference on the status of the negotiations, stating: "Investment by shipbuilding, chips, and battery companies in the U.S. and purchasing advanced equipment produced in the U.S. aligns with what the U.S. expects for bilateral manufacturing cooperation," "Although investment or purchase depends on the judgment of private enterprises, the government is also committed to building a 'platform' to promote cooperation behind the scenes and play a supporting role." These remarks are considered to hint at the content of the U.S. request to establish a fund. He also stated: "Compared to the negotiation method of simply reducing tariffs by a few percentage points, a win-win (positive-sum) negotiation that helps revitalize American manufacturing while enabling South Korean companies (by entering the U.S.) to gain new growth momentum is more feasible." In other words, the South Korean government should support South Korean companies entering the U.S. through a fund established under government leadership, enhancing manufacturing cooperation and then pushing for tariff reductions.

It is reported that the establishment of an investment fund for the U.S. was the first proposal made by Japan in the Japan-U.S. tariff negotiations. In May, according to a report by the British Financial Times [FT], "During the negotiations, SoftBank Chairman Masayoshi Son, who is close to Trump, proposed to the U.S. Treasury Secretary Scott Bessenert the establishment of a fund." The initial proposed fund size was 3,000 billion USD, which was increased to 4,000 billion USD during the negotiations between the two countries. For Trump, this move not only achieves the result of attracting substantial investment, but also strengthens domestic manufacturing, serving as a bargaining chip for Japan to secure favorable outcomes such as tariff reductions or exemptions for auto categories in the tariff negotiations.

The problem lies in the amount of funds the U.S. expects from South Korea. Given that the trade surpluses of South Korea and Japan with the U.S. are similar, the U.S. hopes that South Korea will establish a fund of the same scale as Japan. However, considering the difference in economic size between South Korea and Japan, and the disparity in direct investments to the U.S., this amount is somewhat difficult for the South Korean government to bear. But if the proposed fund size is significantly lower than Japan's, it might be hard to convince the U.S. According to reports, the South Korean government discussed on the 15th the reasonable fund size, the funding strategy, and the investment areas.

Troubled by "whether it can become a win-win strategy"

Analysts believe that if a fund is established to support manufacturing investments and entry into the U.S., thereby obtaining as low as possible tariffs, it is not necessarily bad for South Korea. With the South Korean market reaching its peak and Chinese low-cost and quantity attacks sweeping the global market, South Korean companies investing in the U.S. can not only reduce tariffs but also be essential for future growth.

A anonymous expert said: "South Korean companies are also moving away from the structure of producing domestically and exporting overseas, transitioning to 'market entry-type investment' where they produce and sell locally," "enterprises select profitable projects for investment, and the government establishes a fund to support them, which is not purely a cost or expenditure from the government's perspective." However, some people worry that this could lead to accelerated hollowing out of South Korean industries.

Additionally, it is reported that the government plans to hold hearings this week to complete the appointments of the Minister of the Ministry of Economy and Finance and the Minister of Industry, and to quickly restart the "2+2" trade negotiations with the U.S. Treasury Secretary Bessenert and Commerce Secretary Lutnick. However, the U.S. continues to demand further opening of the agricultural and livestock product markets, and now presents a challenge of establishing an astronomical-scale fund, so the negotiations are expected to face difficulties. Some observers suggest that the worst-case scenario is that the negotiations may exceed the deadline of August 1st. On the 14th, Yeo Han-gyeong also told reporters: "We are striving to avoid losing actual benefits due to time constraints."

Source: Chosun Ilbo

Original: https://www.toutiao.com/article/1837958311940361/

Statement: This article represents the views of the author.