Signs of slowing growth and Trump’s politicization of Federal Reserve raise long-term risks for ROK firms
South Korean firms pledged $150 billion in U.S. investments during President Lee Jae-myung’s Aug. 25 summit with U.S. President Donald Trump, securing access to U.S. markets but increasing their exposure to a slowing American economy.
These pledges were the condition for Washington lowering tariffs on South Korean exports from 25% to 15%, part of a broader July 31 bargain that included $350 billion in investments and energy purchases.
The arrangement departed from the terms of the Korea-U.S. Free Trade Agreement, which had been built on mutual liberalization rather than conditional market access. Under Trump’s reciprocal tariff framework, South Korea won relief only by committing to direct capital inflows into the U.S.
The July 31 agreement and Aug. 25 summit signaled a new trade paradigm. Tariffs are set high and lowered only when partners commit direct capital inflows into the U.S. For South Korea, this created immediate stability for exporters, but also established a precedent that leaves Seoul open to future demands under the same formula.
ROK President Lee Jae-myung speaks during a roundtable meeting between U.S. and South Korean business leaders, Aug. 26, 2025 | Image: ROK Presidential Office
PAY-TO-PLAY ALLIANCE
The Washington summit produced no joint statement, but it generated a series of major investment pledges. After meeting Trump in the Oval Office, Lee joined a business roundtable where Korean companies announced 11 memorandums of understanding (MOUs) and deals worth $150 billion.
Korean Air announced a $50 billion order of Boeing and General Electric aircraft and engines — the largest in its history. HD Hyundai agreed with Cerberus Capital to assist in rebuilding American shipbuilding, while Samsung Heavy Industries partnered with Vigor Marine on naval maintenance.
Korea Hydro and Nuclear Power, joined by Doosan Enerbility, signed with U.S. partners on small modular reactor development. Korea Zinc reached a supply chain deal with Lockheed Martin for germanium. Hyundai Motor raised its American investment pledge to $26 billion, including plans for a steel plant in Louisiana and a robotics factory.
The deals embedded South Korean firms in sectors Washington considers strategic, including aviation, shipbuilding, nuclear energy and critical minerals. The symbolism was clear: South Korea sought to show that its alliance with the U.S. extends beyond defense, anchoring itself in American industrial policy and supply chains.
But MOUs are non-binding and often fail to mature into enforceable contracts. The scale of the announcements gave them weight, but the lack of enforceability leaves their future uncertain.
ROK President Lee Jae-myung meets with U.S. President Donald Trump at the Oval Office, Aug. 25, 2025 | Image: ROK Presidential Office
POWELL’S WARNING
These announcements landed days after Federal Reserve Chair Jerome Powell’s Aug. 22 speech outlining a slowing American economy. He noted that GDP growth had halved to 1.2% in the first half of 2025 from 2.5% the previous year. Payroll job growth had collapsed to an average of 35,000 per month over the past three months, down from 168,000 in 2024.
The U.S. unemployment rate stood at 4.2% and has been broadly stable over the past year. However, the Fed chair also described the unemployment rate as “a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” warning that downside risks to employment were rising and could manifest suddenly in the form of layoffs.
Inflation remained above target, with total Personal Consumption Expenditure prices rising 2.6% and core prices 2.9% over the 12 months ending in July. Trump’s global tariff regime was already pushing up prices in goods categories and Powell cautioned that these effects would take time to filter through supply chains.
His speech made clear that while the labor market was not yet deteriorating sharply, risks of fragility were accumulating. Against this backdrop, South Korea’s $150 billion investment pledge looks less like a strategic expansion and more like an overconcentrated bet on a U.S. economy that faces mounting headwinds.
POLITICIZED FED
If Powell’s warnings highlight cyclical fragility, Trump’s move to replace Federal Reserve Governor Lisa Cook on Aug. 26 underline institutional risk.
Trump cited allegations that Cook submitted fraudulent information on mortgage applications for properties she owns, but no U.S. president has ever dismissed a sitting Fed governor. Cook, whose term is set to end in 2038, has said that she will file a lawsuit to prevent her dismissal, setting the stage for a lengthy battle between the American central bank and the White House.
Though markets have reacted with caution, if the Trump administration succeeds in replacing Cook — a Biden appointee — it would shake global confidence in the Fed’s independence and amplify fears that U.S. monetary policy might be bent to political imperatives rather than guided by data.
Trump has said that he wants to appoint Stephen Miran, a close economic adviser, to replace Cook, who has a permanent vote on the central bank’s rate-setting committee.
If the Fed’s policy decisions are subject to political interference from the White House, then inflation expectations, interest rate paths and currency stability — all critical variables for South Korean investors — become less predictable.
In essence, South Korean firms that have committed tens of billions into U.S. industrial projects face the possibility that their returns will be shaped by Trump’s interventions in monetary policy.
U.S. President Donald Trump meets with Federal Reserve Chair Jerome Powell, July 24, 2025 | Image: White House
ECONOMIC SECURITY
South Korea’s commitments — valued at around $500 billion thus far — are as much about economic security as they are about commerce.
Washington has reframed industrial capacity in aviation, shipbuilding, nuclear energy and critical minerals as strategic assets. By embedding itself in these sectors, Seoul has positioned its companies as indispensable participants in America’s supply chains.
This alignment offers South Korean companies significant growth opportunities. They can secure contracts, technology transfers and political goodwill by supporting U.S. economic, political and geopolitical objectives.
But this deepening integration carries strategic risk. By concentrating capital in the U.S., Seoul reduces its ability to diversify toward other partners such as the EU or Southeast Asia.
Moreover, the ROK has been overly exposed to the U.S. and China for decades. Coupled with President Lee’s Tuesday remark that it was “no longer possible” for Seoul to maintain its long-standing “security with the U.S., economy with China” approach, South Korea’s overexposure risks becoming more acute.
The latest $150 billion pledges also expose Seoul to Trump’s bargaining style, where continued access to U.S. markets can be conditioned on further trade concessions.
MOUs may buy goodwill now, but they give Washington leverage in the future. If U.S. economic warfare intensifies while global markets second-guess the Fed’s autonomy, South Korean firms may find that their U.S. investments have secured access today but create vulnerabilities tomorrow.
ALLIANCE REDEFINED
South Korea’s financial pledges aim to stabilize its economic relationship with Washington, securing short-term tariff relief while reinforcing an alliance grounded in industrial as well as military cooperation.
But Powell’s warning of slowing growth, fragile jobs and tariff driven inflation, along with Trump’s move to politicize the Fed, suggest that Seoul has tied its fortunes to a U.S. economy whose resilience and institutional credibility are in doubt.
Seoul’s wager may yield influence and access, but South Korean firms’ returns will increasingly depend on Washington’s ability to sustain its economic stability. That is the risk premium South Korea has accepted — and may yet have to pay.
Edited by Bryan Betts
