- Trump said he wants Seoul to pay for a U.S.-deployed missile defense system.
- Trump also said he wants to renegotiate trade with South Korea.
- South Korea has a vote next week that could put a liberal president in office.
- Divisions between the two allies are good for increasingly erratic North Korea.
President Donald Trump upset South Korea at precisely the wrong time.
Trump shocked the longstanding U.S. ally and trading partner in an interview with Reuters last Thursday with two unexpected announcements: He wants Seoul to pay for a missile defense system the United States is deploying there, and he wants to renegotiate the existing free trade agreement between the two countries.
The comments came against a high-stakes backdrop: Tensions are rising around North Korea's nuclear threat, and South Korea is on the cusp of a presidential vote on Tuesday — with a lot at stake not just for South Korea but also for the shape of its future alignment with the United States.
"In terms of South Korea's diplomatic politics, this came at a very bad time," said Scott Snyder, director of the program on U.S.-Korea policy at the Council on Foreign Relations. "It creates an opportunity for [the missile defense] issue to be even further politicized in South Korea in ways that will not serve U.S. or South Korean interests."
"I don't think Trump did this intentionally, but [he] exposed a gap that may be widened," Snyder said. It "may be an opportunity for North Korea to exploit."
The White House did not respond to a CNBC request for comment.
The crack in the U.S. relationship with South Korea reduces the pressure on North Korea to denuclearize, just as China — which has the most leverage on Pyongyang — was just beginning to grudgingly step up economic constraints on the state. Chinese authorities suspended coal imports from North Korea in February.
Meanwhile, the Chinese have retaliated against South Korean companies to punish Seoul for allowing the U.S. to deploy the Terminal High Altitude Area Defense (THAAD) system in the region.
"One of the reasons we tried to quickly finish THAAD deployment [is] because we believe the U.S.-South Korea relationship was a firm alliance," said Hyun-Wook Kim, professor at the Korea National Diplomatic Academy in Seoul, a school for South Korean diplomats. "But then Trump … gives me some internal debate about what to do with China and the U.S."
If U.S. strategy against Kim Jong Un's North Korea is to squeeze the little connection Kim's isolated country has with the rest of the world, that may be more difficult now: South Korea looks more open to working with the dictatorship, especially after Trump's comments.
Seoul could become even more open to talking with Pyongyang if the coming South Korean election goes the way it appears it will.
Already last month, South Korean protesters had begun demonstrating against what they saw as a U.S. rush to get THAAD deployed before the election. Then Trump increased their ire by suddenly raising the idea that their government should pay for it.
South Koreans head to the polls Tuesday to elect a new president, after President Park Geun-hye was impeached and arrested for alleged corruption. Since Trump's remarks, analysts say the scales have tipped further in favor of candidate Moon Jae-in, the Democratic Party of Korea's candidate.
Moon is a liberal who has opposed THAAD and supports more engagement with the North, rather than relying on economic sanctions. His opponent, centrist candidate Ahn Cheol-soo, supports a more traditional, tougher diplomatic path, including reviving the six-party talks.
"There could be some more coordination between Seoul and Beijing that could be different from how Washington wants to pursue" North Korean denuclearization, said John Park, director of the Korea Working Group at the Harvard Kennedy School.
"Trump's statements have helped Beijing in its efforts to reverse or slow THAAD deployment in South Korea," Park said.
As president, Trump has applied negotiating tactics of the business world to foreign policy. After first criticizing China for stealing U.S. jobs and threatening the "One China" policy with a phone call with Taiwan's president, Trump then welcomed Chinese President Xi Jinping to his Florida resort Mar-a-Lago in April. Trump also praised Xi in the Reuters interview last week for "trying very hard" to pressure North Korea.
"When I look at this, what it seems like is one of the most volatile and confusing players is Trump," said Scott Seaman, who analyzes Japan and South Korea for consulting firm Eurasia Group.
"No one really knows what his intentions are. His biggest risk may be people in North Korea will start pricing in his bark is far much worse than his bite," Seaman said. "Really, the biggest unknown in this situation may well be Trump, not Kim Jong Un."
The U.S. began deploying THAAD in March, and officials from South Korea said last Wednesday that the process was moving ahead smoothly.
The following day, Trump said to Reuters: "I informed South Korea it would be appropriate if they paid. It's a billion-dollar system."
Then South Korea said last weekend — and U.S. National Security Advisor H.R. McMaster reaffirmed — that the United States would cover the bulk of the cost.
"We think that's not fair" to have to pay for THAAD, said Hyun-Wook Kim of South Korea's Diplomatic Academy. "We understand he can think 'America First' as a policy, but we are paying a lot" already.
South Korea already spends well over 2 percent of its gross domestic product on military expenses, in contrast with less than 1 percent in Japan, according to 2015 data from the Stockholm International Peace Research Institute.
Also last month, the administration baffled South Koreans when it claimed — falsely — that a U.S. carrier group was steaming toward the Korean peninsula to beef up the U.S. military presence there. It came to light later that the USS Carl Vinson was in fact on its way toward Australia instead, a destination about 4,000 miles away. The carrier group has since been redirected and arrived near South Korea.
"We are already the target of North Korean nuclear missiles. We alone can't defend ourselves from the threat from North Korea," Kim said. "We definitely need the U.S. as a big ally to make China and Japan more balanced in the region."
— Reuters contributed to this report.