South Korean President Lee Jae Myung has raised sharp concerns that Washington’s investment demands could destabilize Asia’s fourth-largest economy. In an exclusive interview, Lee said that U.S. proposals requiring South Korea to commit $350 billion in cash investments could drain liquidity and trigger a crisis on par with the country’s 1997 financial meltdown. The warning comes at a time when Seoul is seeking to balance trade, security, and geopolitical pressures in a volatile global environment.

Trade Talks Under Strain

The U.S. and South Korea reached a verbal deal in July under which Washington would reduce tariffs on South Korean goods in exchange for a sweeping $350 billion investment commitment. However, the agreement has yet to be finalized due to disputes over how the funds would be managed and whether adequate protections would be in place.

Lee has emphasized the importance of a foreign exchange swap line with the U.S. to shield the won from destabilizing shocks. Without such safeguards, he warned, the sudden outflow of capital could weaken South Korea’s financial system, tighten credit conditions, and erode investor confidence. Compared to Japan—which has more than double South Korea’s $410 billion in reserves and an existing U.S. swap line—Seoul faces sharper vulnerabilities, making direct comparisons misleading.

Financial Risks and Market Sensitivities

At the heart of Lee’s concern lies the risk of destabilizing capital flows. If Seoul complies with Washington’s request under current terms, the drain on foreign exchange reserves could intensify downward pressure on the won. This would not only complicate monetary policy but could also accelerate capital flight, triggering the kind of panic that defined the Asian financial crisis nearly three decades ago.

Commerce Secretary Howard Lutnick has urged Seoul to follow Japan’s example, while the Trump administration insists it should control investment allocation. Yet the lack of guarantees on commercial viability leaves South Korean policymakers hesitant. Investor psychology further complicates the picture: should markets perceive the agreement as one-sided, confidence in South Korea’s long-term stability could falter, creating a self-reinforcing cycle of weakness.

Political Strains and Security Challenges

The trade impasse coincides with mounting political sensitivities. Earlier this month, U.S. immigration authorities detained more than 300 South Korean workers at a Hyundai battery plant in Georgia, publishing images of detainees in shackles. The episode caused outrage in Seoul, raising concerns among Korean businesses about the risks of investing in the United States.

At the same time, Lee faces heightened security challenges. Cooperation between North Korea, Russia, and China has intensified, underscoring Seoul’s delicate position between democratic allies and authoritarian rivals. While Lee has called for dialogue to reduce military tensions, he acknowledged the danger of an “escalatory spiral” in the region.

What Comes Next

As Lee prepares to address the United Nations General Assembly and chair a Security Council meeting, investors will be watching for signs of progress in U.S.-South Korea negotiations. The key question is whether Washington will provide Seoul with the financial safeguards it seeks, or whether political pressure will force South Korea into a deal that risks undermining its own stability.

The coming months may determine whether Seoul can preserve economic resilience while maintaining its alliance with Washington—or whether unresolved disputes will push the Korean economy closer to the kind of vulnerabilities it has worked to avoid since 1997.