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A new era in South Korea–US relations: ‘Pragmatic diplomacy’ and strategic dependency

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South Korea’s 14th President, Lee Jae Myung, presented a comprehensive vision for the future of the U.S.-South Korea alliance during his first official summit in Washington. The Korea-U.S. relationship, a cornerstone of the regional security architecture since the Cold War, is now gaining a new dimension not only in the realm of military deterrence but also in the fields of technology, economy, energy, and cultural diplomacy.

President Lee’s speech at CSIS bears the hallmarks of a multifaceted strategy shaped by an understanding of “pragmatic diplomacy.” On one hand, Lee outlined the goal of deepening security cooperation with the U.S. in the face of North Korea’s growing nuclear capabilities and China’s rising influence. On the other hand, he is positioning South Korea as a global actor in the fields of advanced technology, the defense industry, and cultural soft power.

This new approach moves the U.S.-South Korea alliance beyond the classic framework of “military dependence,” redefining it in areas such as multipolar competition in the Asia-Pacific region, North Korea’s nuclear threats, China’s economic pressures, and trilateral cooperation with Japan. President Lee’s speech signaled that Korean diplomacy in the coming period will follow a flexible strategy that is both aligned with Washington’s expectations and centered on Seoul’s national interests.

Strategic Vision: A “Golden Age” Alliance

According to Lee, this new era aims for a multi-layered strategic partnership that transcends the traditional, security-focused understanding of an alliance:

“A forward-looking, comprehensive, and strategic alliance rests firmly on three core pillars: security, economy, and advanced technology. This ironclad alliance, built on pragmatism and the national interests of our people, will shine brightly.”

Lee’s approach aims to make South Korea a premier partner for the United States in security, economy, technology, and culture. At the heart of this strategic transformation lies the concept of “pragmatic diplomacy,” which Lee frequently emphasizes. He defined this new diplomatic approach as follows:

“It is more urgent than ever to turn crises into opportunities and to lay the groundwork for new development. The best approach we need is to respond to rapidly changing global issues with strategic insight and flexible thinking; this can be called a pragmatic diplomacy focused on national interests.”

From this perspective, Lee aims to deepen relations with the U.S. not only on a security axis but also in the areas of advanced technology, energy, semiconductors, shipbuilding, and cultural soft power. While particularly underscoring U.S. defense commitments to Korea, he also signaled that South Korea would assume a more independent and leading role in security:

“The U.S. defense commitment to the Republic of Korea and our joint defense posture remain unwavering and resolute. At the same time, Korea will assume a more leading role in ensuring security on the Korean Peninsula.”

These words envision transforming the “military dependence” axis of the alliance, which has persisted since the Cold War, and elevating South Korea to the position of an equal strategic partner to the U.S. in the Asia-Pacific security architecture.

In another sense, Lee Jae Myung’s “golden age” vision also reflects the ambition to transform South Korea from being merely a U.S. defense ally into a multidimensional global actor.

The Security Alliance: Independent Deterrence and Strategic Solidarity with the U.S.

Emphasizing that his meeting with Donald Trump exceeded expectations, Lee stated that security guarantees between the two nations were reaffirmed:

“In our summit meeting with President Trump, we agreed to modernize our bilateral alliance to make it more reciprocal and forward-looking, in line with the changing security environment.”

One of the most notable topics in Lee’s remarks was South Korea’s determination to strengthen its defense capabilities. He demonstrated a concrete commitment, especially on issues such as increasing the defense budget, transitioning to a “smart army” concept, and expanding investments in the high-tech defense industry:

“First, we will increase our defense budget, which will be used to transform the Korean military into a smart army that can prevail in future wars. We will use this budget to acquire state-of-the-art technology and military equipment.”

Lee also reaffirmed the U.S. defense commitment to the Republic of Korea, drawing attention to the importance of this cooperation for the mutual security of both countries:

“The U.S. defense commitment to the Republic of Korea and our joint defense posture remain unwavering and resolute. At the same time, Korea will assume a more leading role in ensuring security on the Korean Peninsula.”

This rhetoric can be seen as a sign that South Korea continues to trust the U.S. but is also moving toward building a more independent deterrent by enhancing its own military capabilities. By emphasizing Korea’s willingness to take on increased responsibility, President Lee also sent a subtle message to Washington:

“Korea, once a beneficiary of American aid, has now become the largest greenfield investor in the U.S. We are now an ally that shares the burden, not just one that is protected.”

In short, Lee’s security strategy aims to protect shared interests, shaped by the security of the 28,500 U.S. troops and 200,000 American citizens in Korea, while simultaneously strengthening South Korea’s own deterrence capacity. This strategy clearly sends the message to Washington: “we will lighten your load.”

The Economic and Technology Alliance

President Lee Jae Myung’s framework aims to extend the alliance beyond security, deepening it along an advanced technology and economic axis. This approach aligns with recent analyses from think tanks. A Carnegie Endowment report noted that South Korea is well-suited for the role of a “critical-technology wingman” for the U.S. and stressed the need for the two countries to “deepen their policy and supply chains” together.

South Korea maintains its technological superiority by specializing in high-value vessel types such as LNG/dual-fuel ships. Industry data shows that South Korea creates significant share and value, particularly in LNG carriers; according to South Korean maritime records, the LNG segment accounts for approximately 52% of the order book’s value. Furthermore, a CSIS study documents in detail the established institutional cooperation infrastructure for naval maintenance, repair, and modernization with the U.S. (e.g., HD Hyundai’s MSRA agreement with the U.S. Navy; Hanwha Ocean’s MRO work on USNS ships).

In 2024, Korea’s total exports reached a historic peak of $683.8 billion, of which $141.9 billion came from semiconductors, increasing their share of total exports to 21%. These figures provide a strong economic foundation for deepening advanced technology ties with the U.S.

President Lee addressed this connection in his CSIS speech:

“South Korea and the U.S. will comprehensively tackle today’s challenges, where security and the economy converge, through an advanced technology alliance where different countries cooperate to achieve mutually beneficial growth.”

Reports from Brookings and CSIS indicate that the U.S. is reconfiguring its semiconductor ecosystem following the CHIPS Act and export controls. In this context, they state that the U.S.-South Korea technology alliance requires multi-layered integration centered on joint R&D, labor policies, and supply chain security. “Public investment is at unprecedented levels… flowing into manufacturing, R&D, and workforce programs.” (Brookings Institution, 2024)

Meanwhile, the “customs tariff agreement” highlighted in Lee’s speech aims to pave the way for next-generation technology chapters and applications beyond the KORUS Free Trade Agreement. According to USTR data, total U.S.-South Korea goods trade reached $197 billion in 2024. Tariff reductions and associated investment packages implemented in the summer of 2025 can be seen as a crucial policy bridge for deepening the advanced technology partnership between the two countries:

“The customs tariff agreement signed by our countries will serve as a stepping stone to strengthen advanced technology cooperation between our two nations. The K-shipbuilding industry, equipped with the world’s strongest capabilities, will bring about a renaissance in the U.S. shipbuilding industry and create a new historic milestone for mutual prosperity.”

Cultural and Identity-Based Messages

On the global stage, South Korea is pursuing a powerful strategy not only in security and economy but also along the axis of cultural diplomacy. Elements such as K-Pop, TV series, literature, and food have transformed the country’s brand perception, becoming central to its “soft power” strategy.

In a study, Tara Shafie from the University of California points out that K-Pop artists can be used as “effective tools in public diplomacy.” According to Shafie, the government is moving beyond traditional diplomatic tools by supporting these artists as “public diplomacy ambassadors.” In her report, Shafie states, “The combined economic and cultural power of the K-Pop industry makes it one of the most significant examples of soft power today,” and the data reinforces the validity of this assertion.

President Lee Jae Myung brought this topic to the forefront in his speech, asserting that South Korea has become a global soft power hub not just in security and economy, but also in culture and democracy. Lee linked the rising global influence of Korean culture to the nation’s peaceful experience with democracy, using these words:

“Korea has established itself as a cultural powerhouse, but I believe it will soon be known not only for its cultural achievements but also as an exemplary model of democracy. The strongest foundation of the South Korea-U.S. alliance is the trust and friendship shared by our peoples. Our peoples are making each other’s lives more prosperous, and this friendship is carrying our alliance toward a bright future.”

Another prominent element in Lee’s speech was his presentation of Korea’s democratic achievements as part of its cultural soft power strategy. According to Lee, Korea’s experience of overcoming crises like coups and martial law “without shedding a single drop of blood” was highlighted as one of the elements that makes Korean culture unique in the world:

“The Korean people managed to overcome the crisis without shedding a single drop of blood. Protestors fought for democracy by singing and dancing. This is the ultimate form of democracy and people power.”

Lee stated that Korean culture has become a global, not just regional, diplomatic tool and underscored its integration with American soft power instruments. Using examples like Netflix, K-Pop, and Korean cuisine, he summarized how Korea is building a “cultural bridge” that strengthens people-to-people ties:

“Young people in Korea and the U.S. now feel a strong connection listening to the music of ‘K-Pop Demon Hunters,’ broadcast worldwide on Netflix. Just as hamburgers and pizza are no longer exclusive to America, kimbap and ramyun are no longer exclusive to Korea.” This statement highlights Korea’s strategy of deepening cultural integration with the U.S. Korean dramas, popular music, and gastronomy are presented as soft power elements that strengthen relations between the peoples of the two countries.

According to official Korean government data:

  • Exports of cultural content (music, TV series, games, films) reached $9.85 billion in 2024.
  • The goal is to increase this figure to $36 billion by 2030.
  • According to the Brand Finance Global Soft Power Index 2025, South Korea ranked 9th in culture and heritage, while rising to 7th in the entertainment and arts category.

All these statements by Lee position South Korea not just as a “technology and security actor” but also as a cultural hub. It is clear that the aim is to foster closer ties with the U.S. not only through security but also through cultural influence and a shared identity.

A Fine Balance on China, North Korea, and Japan

President Lee addressed South Korea’s foreign policy through the lens of U.S.-China competition, North Korea’s growing nuclear capabilities, and trilateral cooperation with Japan. Lee’s messages demonstrated that Seoul is pursuing a flexible yet clear strategy within the multipolar dynamics of the Asia-Pacific. He directly responded to criticisms of “economic dependence on China” and openly stated that the traditional separation of security and economy is no longer sustainable:

“The model of ‘U.S. for security, China for the economy’ is no longer sustainable. We will adapt to U.S. export controls and the restructuring of the global supply chain,” he said.

However, Lee also emphasized that Korea would not completely burn its bridges with China due to geographical necessities, continuing:

“We cannot act contrary to U.S. policy, but due to our geographical proximity, we will focus on managing our necessary ties with China.”

This approach shows that while Seoul sends a message of strategic alignment to Washington, it aims to keep communication channels with Beijing open. Thus, South Korea is pursuing a balancing act, seeking to remain within the U.S.-led security axis while avoiding economic conflict with China.

The North Korea Problem: Deterrence + Dialogue

Regarding North Korea’s rapidly growing nuclear capabilities, Lee presented striking numerical data. These statements aim to both increase the sense of urgency in Washington and demonstrate South Korea’s strategic resolve. While Lee emphasized strong deterrence, he also stated that pressure alone would not be sufficient and that channels for dialogue must remain open. While calling on Washington for a “tougher joint policy,” he adopted a stance that avoids burning bridges with Beijing and Moscow.

“North Korea has the capacity to produce 10 to 20 nuclear weapons per year. Its intercontinental ballistic missile development is in its final stages, and its nuclear capability has increased by about 2.5 times in the last four years. We must maintain a strong deterrent against North Korea, but we cannot solve the problem with pressure alone. We must also keep dialogue channels open to avoid worsening the situation.”

Trilateral Cooperation with Japan: The Indo-Pacific Strategic Alignment

Lee specifically highlighted his visit to Japan before coming to the U.S. and reiterated the importance of the trilateral alliance. He assessed the Korea-U.S.-Japan trilateral cooperation in the context of the North Korean threat, China’s growing influence, and the Indo-Pacific security strategy as follows:

“As President Trump has consistently emphasized, trilateral cooperation between Korea, the U.S., and Japan is critically important. These three countries will respond jointly to North Korea’s nuclear and missile threats and will strengthen efforts to ensure peace and prosperity in the Indo-Pacific region.”

This statement shows that the Seoul administration is strengthening a Washington-centric bloc with Japan as part of its Indo-Pacific strategic alignment. In doing so, Seoul put forward its desire to build a trilateral line of deterrence against both North Korea’s threats and China’s regional ascent.

Asia

Analysts warn new surge in Chinese exports threatens global markets

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Financial Times writer Ryan Avent has written that a fresh, rapid surge in China’s trade surplus could signal a new wave of the “China shock”.

Economists define the “China shock” as a spike in Chinese exports to global markets that intensifies competition for manufacturers in advanced economies and curtails employment in certain sectors.

The term gained widespread currency after China joined the World Trade Organization in 2001, accelerating the inflow of inexpensive Chinese goods into the US and other nations.

The US was the country hit hardest by the initial shockwave. Between 1999 and 2011, more than 2 million jobs were lost because domestic producers were unable to withstand the competition.

Avent argued that the effects of the initial wave are still felt across the American economy because China failed to carry out the rebalancing that the world expected.

The share of net exports in China’s gross domestic product contracted during the 2007-2019 period, allowing Western nations to focus on national security and other matters.

Avent reported that the trade surplus is now escalating rapidly once again, posing a threat to the economies of wealthy nations.

The writer pointed to the stagnation of domestic demand following the collapse of the real estate market six years ago as one cause of this surplus. Another prominent factor is the Beijing government’s channelling of massive resources into manufacturing in pursuit of self-sufficiency.

Attention was also drawn to the role of the depreciating yuan. An appreciation of the currency could require China to alter its foreign exchange interventions, reduce purchases of foreign currency and assets, and sell those assets off. That scenario could trigger currency depreciation and rising interest rates in other countries.

The Wall Street Journal also reported in the spring of 2024 on economists’ concerns regarding a potential second wave.

Experts predicted that global markets would once again be flooded with inexpensive goods, stating that China was manufacturing far beyond domestic demand to overcome its economic troubles.

Moreover, it was stressed that China is now competing in high-technology fields such as automobiles, computer chips, and complex machinery manufacturing.

Meanwhile, Vasiliy Kashin, Director of the Centre for Comprehensive European and International Studies at the Higher School of Economics (HSE) University in Moscow, told the Russian media outlet RBC that the US has imposed sanctions on the Chinese economy since the first shock period, adding that these measures would very likely tighten in the event of a fresh export wave.

According to assessments reported by the Financial Times, this new process could also shake China’s own economy. Alongside rising output, entry-level manufacturing plants across the country are turning toward automation and reducing personnel.

This trend could trigger a painful departure from labour-intensive production, leaving millions unemployed. Manufacturing activities in China that previously capitalised on cheap labour are shifting to other Southeast Asian countries.

The Beijing administration rejected allegations that its industrialisation steps pose risks to other countries. As reported by the Xinhua news agency, China’s Ministry of Commerce stressed that claims of a “China shock 2.0” are groundless. The ministry stated:

“The US and other Western countries have circulated the so-called ‘China shock 2.0’ narrative, asserting that China’s industrial development has shaken Western monopolies and narrowed growth space for Global South countries. This claim is unsupported by concrete data and is entirely unfounded.”

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Iran and China run secret barter network to bypass oil sanctions

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Iran is operating a covert, barter-like trade mechanism to bypass sanctions on its oil sales and procure billions of dollars in goods from China, including military hardware.

Speaking to the Reuters news agency, two senior Iranian officials and three sources closely monitoring the matter said the Tehran administration receives credits for goods imported from China instead of cash in exchange for the oil it sells to the country.

The sources, who spoke on condition of anonymity, emphasised that this method of swapping oil revenues for Chinese goods provides an immediate financial lifeline to the Tehran government at a time when the US has intensified economic and military pressure over its nuclear programme.

China, the world’s largest crude importer, continues to access discounted Iranian oil through this arrangement while shielding its banks and exporting companies from the risk of international penalties.

Although the Washington administration has imposed sanctions on several small-scale Chinese entities facilitating the transport of Iranian oil, it avoids sweeping measures that could shake the global economy.

The US has stepped up its pressure as it seeks to reopen the Strait of Hormuz amid the ongoing war between the two countries.

US Treasury Secretary Scott Bessent said last month that countries failing to cut commercial ties with Tehran would risk exclusion from the dollar system.

It remains unclear how the barter mechanism has been affected by the US naval blockade imposed on Iran as part of the six-month-old war.

However, since the reimposition of the blockade on 14 July, no shipments of Iranian oil passing through the Strait of Hormuz to China have been recorded.

Beijing and Tehran, which describe Western unilateral sanctions as illegal, refrain from disclosing publicly how they sustain their trade.

Sources state that Tehran introduced this system to obtain pharmaceuticals, vehicles, and communications equipment. Chinese manufacturers are said to have no direct contact with Iran, and there is no indication that they are violating sanctions.

On the other hand, the mechanism was utilised at least once last year under contracts supplying Iran with millions of dollars’ worth of air defence equipment. The sources provided no details regarding the shipments in question, and the transactions were not independently verified.

The United Nations conventional arms embargo returned alongside other sanctions in September 2025 following the collapse of the 2015 nuclear agreement between Iran and world powers.

Tehran had withdrawn from the terms of the agreement, while Beijing and Tehran described the European nations’ automatic reimposition of sanctions as legally flawed.

Responding to questions from Reuters, the Chinese Ministry of Foreign Affairs stated that it had no knowledge of the trade structure in question.

Beijing stated that it opposes unilateral sanctions lacking United Nations Security Council authorisation and having no basis in international law.

Iran’s diplomatic missions in New York and Geneva remained silent on the inquiries. A US official speaking on behalf of the White House stated only that they are working with international partners, including the EU, to prevent Tehran from achieving its nuclear goals.

According to data analytics company Kpler, China purchased more than 80% of the crude oil exported by Iran in 2025. This share equates to an average of 1.4 million barrels per day.

Although the two countries signed a 25-year strategic partnership agreement in 2021 covering energy and infrastructure, the operational details of their cooperation remain largely confidential.

The model in question constitutes only one of the networks through which Iran procures goods and services from China without passing through international banking channels.

A Western official and two other individuals tracking the matter said that a buyer acting on behalf of state-owned Chinese oil company Zhuhai Zhenrong deposited hundreds of millions of dollars each month until this year into ChuXin, a shadow financial entity based in China.

These deposits reportedly represent payment for oil purchased from a Hong Kong-based company linked to the National Iranian Oil Company (NIOC).

Approximately 70% of the oil revenues routed through ChuXin is allocated to infrastructure projects in Iran. The remainder is transferred to the accounts of a special purpose vehicle (SPV) established to disburse payments to companies supplying goods to Iran.

Sources close to Iran’s decision-making apparatus confirm the existence of this financial mechanism.

Fund management is shared between a firm acting on behalf of the Chinese Ministry of Commerce and another entity linked to the Central Bank of Iran. When the Central Bank of Iran authorises importers, money transfers are directed to supplier firms. While the name ChuXin does not appear in official records, one source noted that the structure exists solely on balance sheets.

Andrea Ghiselli, an international politics specialist at the University of Exeter, stated that Beijing uses these indirect networks to demonstrate that it will not bow to US secondary sanction threats.

Highlighting that Chinese leaders aim to protect their own banks and firms from being pushed out of the global financial system, Ghiselli said: “They want to create deniability.”

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China leads $54bn capital injection into state banks and insurers

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China’s Ministry of Finance will lead a total capital injection of $54 billion into state-owned insurance companies and banks as part of a coordinated push to reinforce the capital structure across the country’s financial system, according to details disclosed by the institutions in statements on Sunday.

China Life Insurance (Group) Co, the country’s largest life insurer, will receive 35 billion yuan ($5.2 billion) in capital support, whilst China Taiping Insurance Group will receive 7 billion yuan.

In a separate announcement, People’s Insurance Company (Group) of China (PICC) said it plans to raise up to 15 billion yuan via a private placement of A-shares to the Ministry of Finance. The company stated that the proceeds will be used to replenish its capital.

The initiative could fortify the financial position of state insurers, which have been called upon to support the equity market with medium- and long-term funds. At the same time, it could position these institutions to help regulatory authorities manage smaller and higher-risk insurance companies.

Financial sector stability

China’s insurance industry has been contending with shrinking profitability caused by prolonged low interest rates. Solvency ratios across numerous small and medium-sized insurers have also deteriorated.

China Export and Credit Insurance Corp stated that the Ministry of Finance will inject 10 billion yuan to boost the company’s core capital. China Reinsurance (Group) announced that it will execute a capital increase of 3 billion yuan.

“The capital injection represents an important step for enhancing the financial sector’s capacity to serve the real economy and promoting high-quality development across the financial and insurance industries,” China Life said in a statement. The insurer added that the capital support will improve the group’s resilience to risks.

Taiping also noted that the funds provided will strengthen the company’s solvency and other core metrics.

Banks benefit from recapitalisation plan

Separately, three state banks announced on Sunday that they will receive capital support totalling 290 billion yuan.

The recapitalisation framework was first announced during the annual parliamentary meetings in March this year. The move broadens a funding mechanism deployed last year to strengthen the capital structures of several other major state-owned lenders.

Agricultural Bank of China and Industrial and Commercial Bank of China (ICBC), two of the country’s largest state-owned lenders, announced plans to raise up to 160 billion yuan and 100 billion yuan, respectively, through private placements of A-shares to the Ministry of Finance, China National Tobacco Corp, and affiliated entities.

Both lenders confirmed that all net proceeds will be deployed to replenish their Core Tier 1 capital. The measure is expected to help sustain credit expansion at a juncture when Beijing is increasingly relying on state lenders to support economic growth.

Weak credit demand remains a persistent headwind for the world’s second-largest economy, while continuing to erode profitability across the banking sector.

Export-Import Bank of China, one of the country’s three policy banks, stated that the Ministry of Finance will inject 30 billion yuan of capital into the institution, thereby bolstering its capital base.

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