This study discusses the impact of the deployment of the Terminal High Altitude Area Defense (THAAD) defense system by the United States and South Korea on the dynamics of South Korea-China diplomatic relations in the period 2017 – 2022. The deployment of THAAD was motivated by North Korea's growing ballistic missile threat, but it sparked diplomatic tensions as China views the system as a threat to its national security. This study uses qualitative methods to analyze the political, security, and economic impacts of the placement of THAAD as well as the role of economic interdependence in maintaining the stability of bilateral relations. The results of this study show that the placement of THAAD invokes informal Chinese sanctions which has an impact on South Korea's tourism, investment, and entertainment sectors. In terms of political and security aspects, relations between the two countries have experienced significant tensions, although normalization has been achieved through the Three No's Policy. Nevertheless, the high economic interdependence between the two countries remains an important factor in maintaining the continuity of bilateral relations. These findings confirm that a country's defense policy has far-reaching consequences for diplomatic relations and regional stability.