From military alliance to economic partnership: How Trump is redefining U.S.-South Korea ties

President Donald Trump‘s move last week to scale back annual military drills with South Korea came as Seoul finalizes hundreds of billions of dollars in investment commitments to Washington. 

Trump’s frustration over U.S. military spending overseas and stalled implementation of Korea’s investments signal a shift in the allies’ relationship from one based on security to economics, experts said. 

There are now doubts about whether investments will ensure U.S. commitments to Korea’s security that many in Seoul and Washington hoped, said Darcie Draudt‑Véjares,​ a​ fellow at the Carnegie Endowment for International Peace. She was referring to the $350 billion Korea promised to invest in the U.S. in exchange for lower “reciprocal” tariffs last year.

“Looked at a different way, we could see a shift from a relationship centered around a military alliance to one centered around integrated industrial ecosystems,” Draudt‑Véjares said. That puts “economics rather than security as the basis of the U.S.-South Korea partnership.” 

Trump on Aug. 16 said that he had instructed the Pentagon to cut military drills because they were “costly” and send “inappropriate and hostile” signals to North Korea.  

The post was made around the time Korean Trade Minister Kim Jung-kwan arrived in Washington, D.C., to discuss the investment commitments and tariffs with Commerce Secretary Howard Lutnick. 

The order partly stemmed from Korea’s slow pace of deploying the investments, compared to Japan, Politico reported, citing people familiar with the matter.

Trump had cancelled the annual exercises in 2018 as well after his historic meeting with Kim Jong Un in Singapore. Ulchi Freedom Shield exercise, which traces its roots to 1954, involved around 18,000 Korean troops and an undisclosed number of American soldiers this year.

U.S. Commerce Department and the Korean Trade Ministry did not respond to CNBC’s requests for comments. 

Investments for security?

It would be a mistake for allies to think that increased defense spending or economic ties will buy U.S. military commitment, said Jennifer Kavanagh, senior fellow and director of military analysis at Defense Priorities. 

Semiconductor trade or cooperation on shipbuilding can continue, separate from the U.S. military presence in Asia, she said. 

“The terms of exchange might change, but a smaller military footprint and narrower set of commitments in Asia would also free U.S. economic resources for investment at home and abroad,” she said. 

The two economies have deepened ties, particularly as Korean chip giants have become central to the global AI boom, with Nvidia as their most important client. 

Korean businesses are benefiting from Trump’s push for reindustrialization aimed at getting ahead in the competition with China. 

Korean companies, for their part, have significantly increased investments across semiconductors, electric vehicles, and shipbuilding in the U.S. For example, Korean chip giant SK Hynix is building a $4 billion advanced packaging plant in Indiana and allocating $10 billion to invest in new product lines and back its U.S. business.

But not all experts are convinced that scaling back the U.S. military footprint in Asia serves American interests. 

Trump’s decision to cut the annual drills “further exacerbates allies’ concerns of the unreliability of the U.S. as a security and economic partner,” said Bruce Klingner, a former senior Central Intelligence Agency officer in the Koreas.

He added that Trump is seeking to direct American voters’ attention away from the Iran war ahead of the midterm elections in November.

The shortened military exercises do not seem to have mollified North Korea. It launched more than 10 short-range ballistic missiles toward the East Sea Thursday, the South Korean Defense Ministry said. 

Richard Haass, president emeritus of the Council on Foreign Relations, said on “Squawk Box” last week that Trump’s decision weakens the U.S.’ credibility and leverage concerning North Korea. 

The greater danger is that South Korea could pursue nuclear weapons to protect itself, and it would be “incomparably worse because it would ultimately bring in China and potentially Japan,” he said. “It’s a fiasco.”