Trade negotiations between South Korea and the United States have hit a roadblock due to concerns surrounding the foreign exchange implications of a $350 billion investment fund. The fund, part of an agreement reached with U.S. President Donald Trump in July, has sparked fears that the resulting dollar demand could overwhelm South Korea’s relatively small currency market, potentially destabilizing the won. South Korean officials have expressed reluctance to accept terms similar to those agreed upon by Japan, which finalized a $550 billion investment package earlier this month. Tokyo’s deal requires transferring funds within 45 days of project selection and evenly splitting free cash flows until an allocated amount is reached, after which 90% of proceeds go to the U.S. U.S. Commerce Secretary Howard Lutnick emphasized that Seoul must either accept the same terms or face tariffs, leaving no room for negotiation. South Korea’s currency market, which remains tightly controlled since the 1997 financial crisis, is significantly smaller than Japan’s, with the won accounting for just 2% of global currency trade compared to the yen’s 17%. Market participants warn that the $40 billion annual demand from the state pension fund for overseas investments already strains the won, and the new package could add $100 billion annually from 2026 to 2028. Amid these challenges, South Korea is exploring the possibility of a bilateral currency swap line with the U.S. to mitigate potential foreign exchange pressures. Finance Minister Koo Yoon-cheol hinted at an upcoming announcement on foreign currency measures, while Presidential Policy Secretary Kim Yong-beom highlighted the yen’s international status and Japan’s unlimited swap line as advantages Seoul lacks. The U.S. Federal Reserve has previously established temporary swap lines with South Korea, including a $60 billion arrangement during the COVID-19 pandemic, which expired in December 2021. A renewed swap line could provide South Korea with much-needed stability as it navigates these complex trade negotiations.