Korea begins US investment but trade pressure persists

Korea has begun implementing its $350 billion investment commitment in the United States, but U.S. pressure for additional investments and an ongoing review of unfair foreign trade practices are keeping Seoul on edge over the possibility of additional tariffs.

Korea recently made its first $2.4 billion capital injection into the U.S., marking the first phase of the $350 billion investment package finalized by the two countries last year.

The initial fund is earmarked for a gas-fired combined-cycle power plant project in Encinal, Texas, designed to supply electricity to AI data centers. The investment is intended to demonstrate Korea’s commitment to the economic partnership and help secure the agreed 15 percent tariff ceiling for its key exports.

However, the commencement of actual funding has failed to ease U.S. trade pressure. U.S. President Donald Trump has significantly ramped up his rhetoric, publicly pressuring Seoul to join a $54 billion Alaska LNG pipeline and terminal project.

Trump has repeatedly portrayed Korea’s participation as a done deal in domestic political rallies, using the issue as a talking point ahead of the upcoming U.S. midterm elections. He has also threatened to double tariffs if Seoul does not agree to participate in the Alaska energy project, further increasing pressure on the Korean government.

Adding to the pressure is an impending decision by the Office of the U.S. Trade Representative (USTR). The Trump administration is conducting a Section 301 investigation into industrial overcapacity and structural overproduction across 16 major economies, including Korea. U.S. Trade Representative Jamieson Greer said the findings are expected to be made public within weeks, raising concerns that the probe could lead to additional trade measures.

The outcome of the Section 301 overcapacity probe could affect Korea's major export sectors, including semiconductors, electric vehicle batteries, automobiles and steel. The U.S. has already imposed Section 301 tariffs of 12.5 percent on Korea over concerns about forced labor imports, although automobiles, semiconductors and steel covered by existing Section 232 measures are exempt from the new duties.

Korean officials have raised concerns that any additional tariffs resulting from the separate overcapacity probe could push the overall tariff above the 15 percent rate agreed between Seoul and Washington.

The concerns come as Korea's Ministry of Trade, Industry and Resources faces a parliamentary audit on Tuesday, with further scrutiny of the U.S. investment plans later this month. Lawmakers are expected to press government officials over the commercial viability, profitability and financial risks of the projects.

Opposition lawmakers argue that the Lee Jae Myung administration is rushing to commit capital to U.S. infrastructure projects under pressure from Washington, without sufficient safeguards to ensure financial returns or protect Korean investors from cost overruns and other unexpected risks.

Suh Jeong-in, an emeritus professor at the Korea National Diplomatic Academy in Seoul, said Korean investments in the U.S. are taking place in a particularly complicated environment involving not only bilateral trade but also industries and issues related to national security and diplomacy.

“The investments are also taking place amid U.S. competition with China over market-driving technologies such as semiconductors, which could generate a windfall for Korean industries. We should also understand that Trump likes to engage in disputes with countries over trade. He is also concerned about the outcome of the upcoming Nov. 3 midterm elections,” he said.

“Understanding this multi-pronged international trade context, Korea will have to be careful and refrain from taking any action that could trigger an emotional backlash at home. The government will have to continue sending coordinated messages across ministries, such as that Korea will continue discussions with the U.S. to find mutually beneficial solutions.”

Following Korea’s initial $2.4 billion investment, Kwak Sung-il, executive director of the Center for Emerging Economy Studies at the Korea Institute for International Economic Policy (KIEP) in Sejong, said, “The ball is now in the U.S. court.”

“Korea has shown its commitment to the Seoul-Washington pledge by making the initial investment. Now, if the U.S. keeps adding pressure on Korea by shifting the goalposts, Korean firms will start to lose trust in the U.S. That will naturally make them more hesitant to make investments in the U.S.,” Kwak said.

Kwak said the National Assembly, during its scheduled parliamentary audit, should move beyond partisan bickering and forge a unified front to empower Korea’s trade negotiators, sending a clear message that defending the 15 percent tariff ceiling is a nonnegotiable red line.

“To achieve this, the National Assembly needs to create a strong sense of domestic pressure. By rigorously questioning trade officials and demanding that major projects such as the Alaska LNG initiative demonstrate clear economic viability, it can give Korea’s negotiating team a powerful bargaining tool,” Kwak said.

“The negotiators can then use this strong domestic resistance as a credible counterargument in talks with Washington, showing that without clear commercial viability, any additional investment demands could face strong public opposition and parliamentary resistance.”

Kim Hyok-jung, an associate research fellow at the North America and Europe Team of the Center for Area Studies, also highlighted the importance of protecting the 15 percent tariff ceiling.

“Korea has begun its U.S. investments as promised. Now, we need to make sure that the terms agreed upon by Korea and the U.S. are upheld,” Kim said. “From now on, what we need is to create new export channels for Korean materials, parts and equipment companies through these investment projects. This could help offset the impact of tariffs on the Korean economy.”