On the 24th (local time), South Korea and the United States agreed to prepare a 'July package' focusing on four areas: tariffs, non-tariff measures, economic security, investment cooperation, and currency policy, following the '2+2 trade discussions' in Washington, D.C. However, the specific demands and concessions from both sides were not disclosed during the discussions. Observers suggest that the key issues in these four areas are fraught with pitfalls, making progress in negotiations difficult.
◇ The newly emerged 'currency' issue… No way for us to intervene
The most concerning topic that emerged during the discussions was 'currency.' U.S. Secretary of the Treasury Scott Vessen suggested it unexpectedly as an official agenda, bringing it to the table. The Ministry of Economy and Finance of South Korea and the U.S. Department of the Treasury agreed to discuss currency policy separately and are expected to hold practical consultations soon.
The U.S. presenting currency as a core agenda is interpreted as indirectly revealing its intention to curb the strong dollar phenomenon and induce a strengthening of the won and a weakening of the dollar.
The problem is that it is not easy for the government to address U.S. demands. Currently, neither the South Korean government nor the central bank is intervening in the foreign exchange market for the purpose of a strong dollar, and the weakness of the won is a result of increased demand for the dollar, which is a benchmark currency, amid global uncertainties. The relative growth of the U.S. economy compared to South Korea is also a contributing factor.
Experts agree that there is almost no realistic way to transition to a strengthening of the won. Professor Steven Mirant from the U.S. suggested converting short-term U.S. government bonds held by other countries into long-term U.S. government bonds at the end of last year, but this has been assessed as practically impossible as it could undermine trust in the bond market from the U.S. perspective.
Raising interest rates by the Bank of Korea or selling dollars from foreign exchange reserves are also among the methods to create a strong won, but their feasibility is close to 'zero.' Resuming the currency swap between South Korea and the U.S., based on reducing dollar reserves, could also be considered, but it remains uncertain whether the U.S. would be positive about this.
Professor Seok Byung-hoon of Ewha Womans University noted, "The Bank of Korea's interest rate hike is impossible as it could lead to an economic recession in our country. Selling dollars from foreign exchange reserves is also not easy."
There are also voices suggesting that President Trump may use the currency issue as leverage to raise other demands. Park Sang-hyun, a researcher at iM Securities, commented, "There are no means to artificially appreciate the won," adding that there may be demands to purchase U.S. treasury bonds or use it as a show of force to other countries.
◇ Investment cooperation and resolving non-tariff barriers are also not easy
Investment cooperation between South Korea and the U.S. is also not progressing easily. In particular, the 'Alaska liquefied natural gas (LNG) project' actively promoted by the U.S. has an estimated project cost of about $44 billion (approximately 63 trillion won), yet its profitability expectations are relatively low. Moreover, gas must be purchased from the private sector, and there are no tools to enforce this.
Amid this situation, the U.S. White House Energy Regulatory Commission is reportedly urging that a plan to purchase Alaska LNG be officially promised within a week to South Korea and Japan.
A government official stated, "Of course, further review is needed, but responding to the proposal for a long-term purchase contract of Alaska LNG itself is challenging," adding, "In case of project delays or failures, there are concerns about not only financial losses but also domestic shocks due to LNG supply disruptions."
The issue of non-tariff barriers is similarly challenging. The non-tariff barriers that the U.S. demands to resolve include ▲ relaxation of fruit quarantine procedures (apples, pears, peaches, etc.) ▲ easing of import procedures for genetically modified organism (LMO) agricultural products ▲ removal of age restrictions on the import of U.S. beef, among others. However, both farmers and consumers are opposed to these measures, making it uncertain whether they can actually be implemented. There are concerns that it could provoke a nationwide anti-U.S. sentiment, posing a burdensome problem for the new government that will launch after the June 3rd election.
The issue of exporting mapping data, which the U.S. consistently points out as a non-tariff barrier, is also opposed by more than half of the population. According to a survey by Tbrige, more than half (53.9%) of 1,000 adults surveyed responded that they oppose exporting maps to Google due to security threats and violations of data sovereignty. Only 10% agreed.
◇ “It will be difficult to time the July package… We must request a postponement of tariffs"
The political variable of an impending change of government is also a burden. Within the current administration, there is a consensus that "critical decisions must be deferred until after the election." The emphasis by Deputy Prime Minister for Economic Affairs Choi Sang-mok and Minister of Trade, Industry and Energy Ahn Duk-geun on the July package is understood for this reason.
However, some experts believe that it will be difficult to reach a substantial agreement by July. According to the 'Act on the Procedure and Implementation of Trade Agreements,' trade agreements that significantly affect the lives of the people must go through procedures such as public hearings, collecting public opinions, reviewing economic feasibility, and consulting with the National Assembly before they can be concluded.
If the regime changes after the June 3rd election, time will be needed to replace ministers and negotiation delegations. The processes of appointments and hearings could take a considerable amount of time.
The significant differences in perspectives between South Korea and the U.S. pose problems as well. South Korea is aiming for the abolition of reciprocal tariffs and sector-specific tariffs, while the U.S. maintains a stance of "there are no exceptions to sector-specific tariffs," creating a considerable gap. Moreover, the areas of tariffs, non-tariff measures, economic security, investment cooperation, and currency policy are all broad topics, making it difficult to specify the details.
Professor Heo Yoon of Sogang University remarked, "There are substantial differences in negotiation objectives and positions between both sides, and the agenda is also broad," adding that "considering South Korea's political schedule, the feasibility of realizing the July package is low, and requesting a postponement of the tariff imposition could be a more realistic approach."