Japan signed $550 billion, South Korea negotiating $350 billion. The shadow of investment pressure during Trump's term. Hankook Ilbo Graphic

“Controversy over 90% Profit Attribution: What the Actual MOUs Contain”

The $550 billion Strategic Investment Fund Memorandum of Understanding (MOU) signed between the United States and Japan on September 4th has been revealed through a report by the Hudson Institute.

This document clearly shows that the agreement between the two countries goes beyond simple investment pledges, outlining a structure where the U.S. plans the projects and Japan provides the funding.

At the same time, it provides a crucial benchmark for comparison with the ongoing, delayed U.S.-South Korea tariff negotiations.

Japan's Investment Obligations and Sanctions

According to the Hudson report, Japan is obligated to allocate $550 billion during President Trump's term. The investment targets are key strategic industries such as semiconductors, pharmaceuticals, critical minerals and metals, shipbuilding, energy (including pipelines), AI, and quantum computing.

Profit distribution is designed to be 50/50 between the U.S. and Japan before principal repayment. However, after the principal is fully repaid, 90% of the profits will go to the U.S., with only 10% returning to Japan.

While Japan ostensibly holds the right to reject projects, the agreement includes a sanction clause stating that if Japan rejects a project, the U.S. President can immediately impose tariffs on Japanese imports, effectively rendering the rejection right without substantial authority.

Investment Institution Structure and Risk Sharing

The structure of the investment institutions is also thoroughly U.S.-centric.

The investment committee, reporting directly to the President, is led by the Secretary of Commerce. For each project, a Special Purpose Vehicle (SPV) is established and directly managed by the U.S. or an entity designated by the U.S. Japan can only offer opinions to an advisory committee and has no executive authority.

According to the Hudson report, Japanese funds are managed through U.S.-based SPVs. Consequently, in the event of project failure, debt repayment follows the priority structure under U.S. bankruptcy law.

Japan does not receive direct loss guarantees, and the U.S. federal government has only pledged administrative support such as land provision, energy access, and regulatory easing. Ultimately, Japan bears the risk, while the U.S. provides the institutional framework.

Why Did Japan Sign?

Then why did Japan sign under such unfavorable terms?

First, it immediately secured a tangible benefit by reducing automotive tariffs from 25% to 15%.

Second, participation in the $44 billion Alaska LNG project becomes possible, securing exports of Japanese steel pipes and long-term contracts for energy companies.

Third, Japan was recognized as a preferred partner in U.S. strategic projects, gaining an advantageous position over the European Union and South Korea.

Finally, the structural pressure of potential tariff resurgence upon rejection likely left them with no real choice.

Differences in South Korea's Negotiation Proposal

The negotiation terms facing South Korea are similar to, yet different from, those of Japan.

The U.S. is demanding $350 billion in cash investment from South Korea. It is understood that prior to principal repayment, South Korea would receive 90% of the profits, and the U.S. 10%, unlike the arrangement with Japan.

After the principal is fully recovered, the profit distribution would then shift to 90% for the U.S. and 10% for South Korea, mirroring the Japanese agreement.

If these terms, as conveyed by an anonymous U.S. source, are accurate, South Korea would have a significantly more favorable short-term negotiation proposal than Japan, securing 90% of profits before principal repayment.

However, after principal recovery, the structure reverts to the same as Japan's, meaning it cannot escape criticism for being a U.S.-centric framework in the long term.

Comparison with Fund and Bond Yields

From a fund yield perspective, South Korea's terms offer high short-term stability. The ability to bring in up to 90% of initial cash flow provides significant stability, but long-term profitability sharply decreases after principal recovery. Essentially, the structure is designed for short-term stability for South Korea and long-term profitability for the U.S.

Even when compared to sovereign bond yields, it can be evaluated as a stable investment, but the fact that the structure is designed to favor the U.S. remains unchanged.

A Test of the Lee Jae-myung Administration's Negotiation Power

Despite this, the South Korean government is delaying its signature. Japan secured clear benefits like auto tariff reductions and the LNG project, but South Korea, despite proposing cards like the Maritime and Shipbuilding Cooperation Agreement (MASGA), has failed to move the U.S.

President Lee Jae-myung emphasizes that he will not "sign unfavorable deals," but he has already secured a preliminary assessment that the initial terms are more favorable than those offered to Japan.

Ultimately, the strategy of delaying the signature is interpreted as a move to project an image of a resolute president who rejected unfavorable negotiations domestically, while simultaneously creating a political message abroad that better terms were secured than those for Japan.

However, if this stance persists, uncertainty regarding tariffs will continue, and the risk of export-driven industries being placed under disadvantageous conditions will increase.

The Hudson Institute report is significant in that it has revealed the actual clauses rather than political rhetoric.

The essence of South Korea's negotiation lies not in the conditions themselves, but in the extent to which it can modify and accommodate the Japanese model.

Ultimately, the issue is negotiation power.

If the Lee Jae-myung administration prioritizes short-term political gains and misses out on national interests, it will be difficult to escape criticism for engaging in "political gambling with the nation's destiny."

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