WSJ "Korea, Japan 'funds for U.S. investment' risk of bad investment and corruption…will be subject to hearings"

U.S. media warned that forcing South Korea and Japan to make large-scale investments in exchange for tariff reductions could lead to bad investments and corruption.

The Wall Street Journal (WSJ) said in an editorial on the 21st (local time) that President Donald Trump's plan to secure $350 billion in investment from South Korea and $550 billion from Japan is different from conventional investment toward the U.S., and it spelled out the risks of this investment structure.

The WSJ cited the Japanese case that signed an investment agreement (MOU), explaining that this is an unusual form in which one country's government invests in another country's government rather than private companies. It explained that for each investment a special purpose vehicle (SPV) would be established that is chosen and controlled by the president or his designated administrator, and evaluated this as "a de facto sovereign wealth fund that operates without congressional appropriations or legislative procedures."

It added, "the sheer scale of such promises is too large," and analyzed that if the promised money were spent over the next three years, it would amount to spending 6.5% of South Korea's gross domestic product (GDP) and 4.4% of Japan's GDP each year. The Japan Bank for International Cooperation (JBIC), which would be responsible for executing Japan's investment in the U.S., has assets of only $35 billion. The WSJ scoffed at Commerce Secretary Howard Lutnick's advice that Japan would have to "blow up its balance sheet" and borrow heavily to fulfill the MOU as "a truly kind suggestion."

The WSJ wrote that, instead of forcing such investments, it might be a better option to have the two countries increase defense spending. The reason is that not only is the financing unrealistic, but officials in both countries who must answer to voters and parliaments would find it difficult to keep such promises. The paper added that it is "hard to believe the new Japanese prime minister, Sanae Takaichi, who has just launched a coalition government as a member of a minor party, would write a check to a foreign government under such conditions."

Above all, the WSJ emphasized that this is likely to lead to political corruption. The WSJ said that allowing the president to spend hundreds of billions of dollars at his discretion is unprecedented, and predicted that Treasury Secretary Scott Bessent and Secretary Lutnick would "face tremendous political pressure to invest in businesses run by people close to the president and the Republican Party."

The WSJ said that the two governments may be counting on the possibility that unilateral tariff measures will ultimately be struck down by the Supreme Court, but even in that case President Trump could "still extort them using other tariff authorities," and "if a Democratic president had done this, Republicans would have called it improper and held hearings." The WSJ critically predicted that "the Trump investment fund will soon receive the same scrutiny (hearings) it rightly deserves."

Washington = Correspondent Sang-eun Lee selee@hankyung.com