Energy for AI Leads South Korea’s U.S. Investment Pipeline

South Korea has picked a Texas gas-fired power plant as the first project under its USD 350 billion investment commitment to the United States. The plant, built to power AI data centers and chip fabs, appears to clear the return test Seoul applies to each project: recovering its principal plus interest at a rate tied to the U.S. Department of the Treasury’s twenty-year yield. But the larger, less certain candidates behind it, including a nuclear reactor build-out and an Alaska liquefied natural gas (LNG) pipeline, may not. How quickly Korea commits funds to them may shape the contours of future tariff rates and negotiations with the United States.

Korea’s Ministry of Trade, Industry and Resources (MOTIR) and Ministry of Finance and Economy (MOFE) revealed the plant investment in a report to the National Assembly on September 22, 2026. The USD 22.3 billion gas-fired power plant is planned for Encinal, some forty miles north of the U.S.-Mexico border. After the announcement, U.S. President Donald Trump and Korean President Lee Jae Myung reviewed progress on potential investments in a thirty-minute meeting on the sidelines of the UN General Assembly in New York, and President Trump is expected to formally announce the Texas project soon.

The report means the project has cleared Korea’s domestic review, in which a MOTIR-chaired committee assesses each investment’s commercial rationality, its size, and its strategic and legal implications. It does not yet have U.S. approval. Some expected confirmation during President Lee’s visit to New York, but final details appear to be pending. Once President Trump announces the project, Korea has forty-five days to fund it.

Strategic Returns

The strategic investments memorandum of understanding (MOU), signed in November 2025, lists seven sectors as examples of where Korean funds may be invested. These include shipbuilding, energy, semiconductors, pharmaceuticals, critical minerals, and AI/quantum computing. Of the USD 350 billion committed toward investment, USD 150 billion is set aside for shipbuilding projects, leaving USD 200 billion for the other sectors. Separately, Korea agreed to purchase USD 100 billion of U.S. energy projects such as LNG.

Korea has reportedly floated additional investments, including a large-scale build-out of eight nuclear power plants worth more than USD 100 billion. Korea’s participation in an Alaska LNG pipeline may also be a potential project, though neither Washington nor Seoul has confirmed one way or the other. The Texas plant, meanwhile, has moved into an official development framework, which will determine how it is financed, how revenue is shared, whether it is commercially viable, and its payoff timeline and return.

To clear the MOU’s commercial rationality threshold, a project must be projected to recover the baseline principal plus interest over its payoff period. Specifically, it must meet a twenty-year U.S. Treasury bond yield at the time funds are raised, plus a 0.3 percent spread. The Texas plant appears to clear that bar, though not without friction. Talks stalled after the Trump administration asked Korea to raise its commitment from USD 19.8 billion to USD 25 billion, prompting additional review under the commercial rationality clause. The project moved to final negotiations at USD 22.3 billion after the Korean government estimated it would generate roughly twice that amount in revenue over a twenty-year period.

Additional projects may have a harder time fulfilling the MOU’s commercial rationality clause. The potential LNG pipeline in Alaska is facing tough questions about scale, cost, and profitability, questions that are likely to extend to other projects. Indeed, with the commitment at USD 350 billion—or roughly 80 percent of Korea’s foreign reserves—Seoul is unlikely to release money until a project’s buyers, returns, and payback period are locked in. There may be little appetite to quickly commit to investments that may not yet have passed all the parameters of commercial rationality. Corporate structure and the extent of Korean firms’ overall participation are other factors that will impact how deals come together. Discussions on nuclear investment, for example, reportedly remain in flux due to negotiations over a potential Korean stake in Westinghouse, whether Korean companies would lead construction, and whether the plants would use a proprietary Korean reactor design.

Korea’s implementing law, the Korea-U.S. Strategic Investment Special Act, allows for exceptions in cases of “unavoidable reasons, such as national security or supply chain stability,” with National Assembly consent. It remains unclear how these cases might realistically be determined or defined, but the exception could give greater leeway to projects that do not ordinarily meet expected investment returns. Some projects may be selected solely on their national security aspects.

Interest Rates and Financing

The bar a project must clear also depends on when Korea sends the money. The return test’s interest rate is pegged to the twenty-year Treasury yield on the “day Korea raises funds,” so the longer a project waits for confirmation, the more exposed it is to swings in that rate.

The rate stood at 4.69 percent when Presidents Trump and Lee signed the U.S.- Korea investment MOU in November 2025, and at 5.33 percent on September 22, 2026. Government borrowing, inflation, energy risks, and competing investment in capital markets for AI and data center financing were key drivers of this rate increase. If yields keep rising, each delay makes the commercial rationality clause harder to clear.

A weaker won could also erode public support for such projects and slow the funding timeline. The joint fact sheet on the MOU allows Seoul to “request an adjustment in the amount and timing of the funding” to be given “due consideration” by the United States should it appear that the annual commitments cause market instability. However, Korea’s USD 20 billion in annual commitments are financed by earnings on holdings of the country’s roughly USD 442 billion in foreign reserves, in part to limit the impact on the exchange rate and public resources. Similarly, the USD 150 billion shipbuilding component of the USD 350 billion can be met through financing and loan guarantees to support projects, limiting its potential burden on Korean public funds.

Sector Selection

The three candidates offer some clarity on where the bulk of the USD 200 billion outside shipbuilding may go. All are energy projects.

The Texas plant is slated to supply electricity to AI data centers and semiconductor fabrication facilities, while the nuclear build-out, if selected, would add generating capacity for data centers as well, in line with President Trump’s stated goal to quadruple U.S. nuclear power production by 2050. Korea is being embraced as an indispensable partner in the United States’ AI development, including semiconductor provision and infrastructure build-out. Together, the selections suggest AI infrastructure sits near the top of Washington’s priorities for the bilateral investment fund.

The Alaska pipeline, if selected, could help Korea meet its separate pledge to buy USD 100 billion in U.S. energy, as Alaska’s Pacific-facing position makes Asia the likely market for most of its LNG.

All About Tariffs

Annual commitments of USD 20 billion to Korean investment projects in the United States under the MOU underpin Korea’s 15 percent tariff ceiling on exports to the United States. With tariffs under the International Emergency Economic Powers Act off the table, Washington is rebuilding that rate through combined Section 301 actions.

The first, on purported forced labor violations, took effect in July 2026 and set a tariff rate of 12.5 percent on most Korean goods. The second, on excess capacity, is still open, and its rate will likely bring the total rate to 15 percent. Korean exporters also face Section 232 tariffs on autos and auto parts, advanced chips (with exclusions), pharmaceuticals, steel, aluminum, and copper. Staying on track with the MOU investments could help Korea keep its Section 301 tariff rates no higher than those of other partners that made similar investment pledges, such as Japan or Taiwan.

Progress on the investments could also help keep potential new tariffs on digital services and semiconductors at bay. In August 2025, President Trump threatened tariffs on countries that “discriminate against American technology [companies].” Politico reported in August 2026 that the Trump administration was considering additional tariffs on semiconductors. However, U.S. Secretary of Commerce Howard Lutnick favors relief for companies that build U.S. manufacturing facilities.

Those plants may not come through the MOU. The MOU calls for a fifty-fifty split of project profits until the investment is paid back, and a ninety-ten U.S.- Korea split for anything beyond that. Accordingly, semiconductor companies’ ability to independently raise funds through capital markets and the sensitivity of their technology may also make chip projects a less attractive investment for Korean companies to make explicitly under the terms of the MOU. Even as other MOU projects come online, Korea’s chip exports may remain exposed to the broader tariffs under consideration.

The investments also bear on the security relationship. Negotiations between the two countries over U.S. requests for Korea’s military commitment in the Middle East grew more strained in August 2026 after President Trump ordered a reduction in joint military drills, citing their cost, his relationship with North Korean leader Kim Jong Un, and Korea’s decision not to join what Trump called the “denuclearization” of Iran. MOU investments coming online may help reduce these tensions as the two countries approach their one-year deadline for investment commitments.

What Comes Next

The Texas plant gives Korea its first concrete project, but the project is not final until President Trump announces it, and the money reaches the U.S. special purpose vehicle that allocates and disburses the funds.

Whether the rest of the commitment follows will become clearer as the forty-five-day funding window opens, as Washington and Seoul decide on the nuclear build-out and the Alaska pipeline, and as the Office of the United States Trade Representative sets a rate in its excess capacity investigation. Until then, tariff threats, strains in the security relationship, and unfinished trade talks will continue to weigh on the MOU as it approaches its first anniversary in November.

Tom Ramage is a Fellow and Economic Policy Analyst at the Korea Economic Institute of America (KEI). The views expressed here are the author’s alone.

This material is distributed by KEI on behalf of the Korea Institute for International Economic Policy. Additional information is available at the Department of Justice, Washington, DC.