Memoranda of understanding.
What are they, exactly? They’re “non-binding agreements that outline the shared intentions and objectives of two or more parties, often serving as a precursor to a legally binding contract,” according to a standard, generic definition.
A more formal-sounding description says they’re “agreements which serve as an expression of aligned will between the parties in question and depict the intent of a common line of action.” MOUs, the same definition continues, are “a formal document,” but they’re “not legally binding.” Rather, they “merely show the willingness of each concerned party to take action to move the contract forward” and help delineate “the purposes and scope of negotiations.”
In other words, you wouldn’t want to buy a house based on an MOU. Nor a car. Really, you wouldn’t want to conduct any business at all solely on the basis of an MOU because in the event your counterparty doesn’t live up to his or her end of the bargain, your only recourse is coercion. Since you didn’t have a legally-binding contract, no third party can adjudicate claims stemming from alleged failure to honor commitments.
You can probably guess where I’m going with this. Donald Trump’s trade “deals” (he’s ostensibly sealed several this week on his trip to Asia) aren’t contracts. They aren’t treaties either. I don’t know what they are and neither does anyone else. But as far as most observers can tell, they aren’t properly binding, which means the only thing keeping the other parties (Japan, South Korea and so on) from reneging are Trump’s various and sundry threats.
On Wednesday, Trump called a $350 billion arrangement with South Korea “pretty much finalized.” In exchange for still-vague investment pledges, Seoul will enjoy relatively favorable (where that just means they won’t be at a disadvantage) tariff treatment for South Korea’s auto sector and semiconductors.
As they leaked out in dribs and drabs, the final terms were more specific than the original framework hashed out in July, but still fell woefully short of the rigor required for any manner of contract or treaty. $150 billion of the headline $350 billion figure will go towards bolstering America’s shipbuilding capacity, which the Trump administration’s keen to revive in the face of a de facto Chinese monopoly. The remaining $200 billion will go towards… well, that’s just it: Nobody really knows.
What we do know is that the terms of the “deal” (and I can’t resist employing scare quotes) suggest the arrangement only runs through 2029. Because Seoul can’t fund upfront dollar investments on the scale Trump demanded without destabilizing the local economy and the currency (South Korea isn’t Japan, as local officials were at pains to remind Scott Bessent), investments are capped at $20 billion per year.
You don’t have to be any kind (i.e., “very stable” or otherwise) of genius to see that the numbers don’t add up. For South Korea to hit the headline investment pledges, the arrangement will have to outlast Trump’s second term in office. (Apparently, the Fed declined to provide South Korea a swap line specifically for the purposes of facilitating investments under the deal.)
Ultimately, an investment package on this scale where the investor’s an emerging market with limited capacity to supply hard currency can only work if the two sides get creative on the funding. Comments from local officials suggested a mix of loans and bank guarantees, and indicated that South Korea will subsume all the investments under an SPV to ensure that losses on failed projects can be offset by profits on successful endeavors.
There’s also a safeguard that allows for a mutually agreed restructuring of the profit share split in the event — and try not to laugh — the Koreans can’t recoup principal by 2045, when Trump will be getting started on his eighth term. There are, according to South Korean officials, other failsafes which limit the country’s risk including an MOU footnote stipulating that Seoul will only invest in “commercially viable projects with guaranteed cash flow.”
If you thought the pomp in Japan was something to behold, it was nothing compared to what greeted Trump in South Korea, where Lee Jae Myung put on a veritable pageant. The festivities commenced the moment Trump was wheels-down. As he stepped off Air Force One, a band played “Y.M.C.A.”
Shortly thereafter, Lee, wearing a custom gold tie fashioned for the occasion, presented Trump with the Grand Order of Mugunghwa, South Korea’s highest honor. He’s the only US president to receive it. Trump called the medal “as beautiful as it can possibly be.”
That wasn’t the end of it. Lee also crowned Trump, literally, with a replica of a Silla Kingdom royal diadem.
As Trump pondered his gifts, a South Korean official explained that the crown “symbolizes the divine connection between the authority of the heavens and the sovereignty on Earth, as well as the strong leadership and authority of a leader.”
At lunch, Lee fed Trump gold-adorned brownies. (And no, I’m not joking.)
In a statement that could’ve walked out of a history book, Lee’s office said the surreal proceedings “reflect President Trump’s taste for gold.”
That award sounds suspiciously like something the Dalai Lama said to Carl Spackler.
In 2024, South Korea exports to China and the US (as a percentage of total South Korean exports) were 20% and 19%, respectively. Pretty close!
Anything our country can do to strengthen our alliance with South Korea is a plus, given that we are in an economic war with China.
Agree with Sea Turtle. We need S Korea’s manufacturing ability.
Trump’s tariffs are nothing but extortion by the ‘wealthiest’ nation of every other country. The world knows it’s ridiculous, but Trump must be appeased. You accomplish that by all these MOU’s, which as H points out are toothless. All it’s accomplished is shaking the world economy like it was a snow globe. Business leaders are loath to speak up about the insanity less they and their companies be punished. Sure reads like a socialist centrally controlled economy and that’s a fools road to travel. The chicken’s are on their way home, but when will they get here. Is it that the longer they take, the worse the outcome will be.
The a$s kissing is in overdrive these days. Can’t really blame them – it’s the surest way to get a “deal” and wait this out.
And even though Trump should not keep the gifts he received, he will.
I had a couple uncles that fought in Korea. That was no picnic. I have always been nervous about the outcome. One of the larger economic powers in the East is sitting a couple miles from a heavily armed camp with no money of its own. Somehow there seems to be more risk in that situation than is commonly assumed. South Korea and Taiwan are important allies and trading partners that realistically we can’t protect and would really miss if they were swallowed.
No one could parody this. King of Mugunghwa, a crown and all. These are something your enemies would give you to embarrass you. Welcome to the 21st century.
Peacemaker. What a joke.