How Trump is extracting US$900 billion from Japan and South Korea

WASHINGTON - US President Donald Trump’s renewed trade offensive has come at a steep cost for Japan and South Korea.

With little room to manoeuvre, both countries have been pressured by Washington to commit to investing hundreds of billions of dollars in the US in exchange for lower tariffs.

The demands follow years of Japan and South Korea ranking among the top economies with the largest trade surpluses with the US.

The commitments helped seal trade deals for both Asian nations back in July, but the complexity of the investment pledges has led to months of wrangling over the size, scope and structure of the funds.

Japan has now

largely finalised its investment arrangement with the US

, shifting the focus to specific investment projects under consideration.

South Korea, meanwhile, continues to push back against US demands, citing the scale of the proposed investment and the potential impact on its currency market.

What has Japan agreed to?

Japan has agreed to invest up to US$550 billion (S$712 billion) in the US through government-linked funding.

Under the memorandum of understanding (MOU) signed between the two countries in early September, the US has the right to consider raising tariffs again if Tokyo does not provide funding for investment projects approved by Mr Trump within 45 days. 

According to the MOU, Mr Trump will choose projects based on recommendations from an investment committee led by US Commerce Secretary Howard Lutnick.

The investment committee will incorporate input from Japan via a separate panel, with investments to be made by Jan 19, 2029 – the end of Mr Trump’s presidential term. 

The US says it does not intend to raise tariffs provided Japan faithfully implements the deal and does not fail to provide funding. The US President would be able to raise tariffs again if Japan fails to fund a project.

Initial terms stipulate that profits from investments will eventually be shared 90:10 in Washington’s favour. 

What has South Korea agreed to?

South Korea has pledged to invest US$350 billion, though how the plan will be carried out has

yet to be finalised

.

President Lee Jae Myung said before Mr Trump’s arrival in South Korea that the two sides were stuck on key points such as the size and timeframe of investments and the sharing of the profits.

The Japan deal and the conditions that were stipulated made policymakers in Seoul blanch. South Korea’s Prime Minister Kim Min-seok said that fulfilling the pledge would also deal a severe blow to the Korean economy unless the US provided dollars through a currency swop. 

The

arrest and shackling of hundreds of Korean workers in a US immigration raid

on a Hyundai Motor and LG Energy Solution battery plant in Georgia in September also shocked South Korea, raising questions about its existing investments in the US. 

What else is unclear about the deals?

While Mr Trump characterised the deals as requiring the two countries to put up cash up front, policymakers in Tokyo and Seoul said the pledges would take the form of loans and loan guarantees, with only a small amount of direct equity purchases. 

Why did Japan and South Korea agree to invest so much?

The investment commitments helped both countries secure framework trade deals in July that brought across-the-board tariffs down from a threatened 25 per cent to 15 per cent.

But a separate

25 per cent duty specifically on cars and auto parts

stayed in place, pending an executive order from Mr Trump. The US used that extra pain on the car sector to leverage more detailed investment commitments from both Japan and South Korea.

Japan moved faster on negotiations as then Prime Minister Shigeru Ishiba sought to secure lower car tariffs while his political standing at home started to slip.

Japan’s car sector accounts for almost 10 per cent of the country’s gross domestic product (GDP) and employs about 8 per cent of the nation’s workforce, according to industry estimates. 

How big are these commitments relative to GDP?

For Japan, the investment commitment amounts to about 14 per cent of GDP as at the end of 2024. The dollars required would represent just under half of the country’s foreign currency reserves. 

For South Korea, the relative burden is much heavier. Its pledge is equivalent to around 20 per cent of GDP as at 2024 and roughly 80 per cent of its foreign-exchange reserves.

Japan’s trade surplus with the US was the seventh-largest in 2024, at US$68.5 billion. That means Tokyo’s pledge would be about twice the size of the US trade deficit with Japan during Mr Trump’s second term, assuming the gap holds steady.

The US shortfall with South Korea was only slightly smaller, at US$66 billion.

What specific projects is Japan considering?

To demonstrate that the fund was moving ahead, Japan’s Trade Ministry cited more than 20 projects under consideration during Mr Trump’s October visit.

The companies included SoftBank Group, Westinghouse and Toshiba. According to the Trade Ministry, these companies are exploring ventures in energy, artificial intelligence and critical minerals.

The size of the proposed projects ranges from US$350 million to as much as US$100 billion, and together they could total about US$400 billion, according to Japan’s Trade Minister Ryosei Akazawa, who led the tariff talks with the US.

What’s the potential impact on economies and financial markets? 

Market participants have speculated that such a surge in Japanese investments into the US would weigh on the yen.

Mr Akazawa, however, said the investments will be funded through a foreign-exchange special account, primarily using existing dollar holdings, thereby minimising any impact on currency markets.

Japan is already the biggest investor in the US, and expanding that footprint through the new fund has also raised concerns that domestic manufacturing could suffer if companies increasingly opt to produce goods in the US rather than export from Japan.

The government is considering measures to address those worries. 

South Korea faces similar concerns, though the potential impact to its currency is viewed as even larger.

The Bank of Korea has said the country can provide only up to US$20 billion a year in funding without affecting the foreign exchange market.

Local media outlets have reported that Seoul is pushing for annual investment flows below that amount, while Washington continues to press for more. BLOOMBERG