The Division of Korea
With Soviet forces rapidly converging on Seoul, American diplomats suggested the 38th parallel as a temporary line of division between Soviet and American armies, cleverly trying to place Seoul in the American area of influence. The Soviets, with no clear policy on the Korean peninsula, readily accepted. Coming across the Korean peninsula, both the Americans and Soviets found the Japanese colonial administration in total collapse. Most Japanese had simply left the peninsula, often abandoning lands and businesses in their wake. At the time, Korea was comprised of 1) a large mass of tenant farmers (under both Korean and now-fled Japanese landlords), 2) industrial workers, many returning from Japan or former Manchukuo, and 3) lower-level government officials, such as bureaucrats and police officers, often discredited by being employed by the Imperial Japanese government.
With almost everyone with actual government experience having abandoned their posts in fear of widespread lynchings and mob 'justice' from vengeful Korean nationalists, public order had collapsed outside of areas directly occupied by US or Soviet soldiers. Tenant farmers regularly claimed their lands for themselves, while angry mobs roamed the street hunting down suspected Japanese collaborators (sometimes just an excuse to target subjects of grudges). In the chaos, a network of "People's Committees", largely staffed by peasants or industrial workers, began establishing local governments with the implicit support of most of Korea's elites (who preferred usually light communal justice to violent mob justice). The Japanese Governor-General's Office met with several Korean independence activists and agreed to relinquish sovereignty to a new "People's Republic of Korea", who would presumably rule through the People's Committees.
American army forces were immediately inclined to crush the new PRK with force. Everything about the enterprise to them stunk of Communism, with most of Korea's landlords (who were seen as the most stable conservative force in society) generally horrified. General John R. Hodges, commander of US forces in Korea, pushed to immediately outlaw the People's Committees. Direct orders came down from President Henry Wallace that he was forbidden from doing so - Wallace, who had been a hawk against Imperial Japan from the start, saw the People's Committees as a natural progressive resistance movement against Imperial Japan and saw the Korean landlord and business class as compromised by collaboration with Imperial Japan.
Similarly, the Soviets were at the start favorable to the new People's Republic of Korea. By late 1945, many optimistic diplomats believed that Korea could be released as a united, neutral nation, perhaps as a model for Germany. However, trust between the Soviets and Americans quickly broke down. At the Moscow Conference in December of 1945, the Americans as ordered by President Wallace pressed for immediate independence of Korea, while the Soviets believed Korea ought to be placed under a five-year trusteeship before independence. The Soviets were in fact prepared to grant unified Korean independence, but they believed five years would give them sufficient time to "purge the remnants of Japanese fascism" from Korea before releasing the North back into a unified Korea.
What broke Soviet support for the PRK was the fact that PRK leadership, such as Lyuh Woon-hyung and Cho Man-sik (the highest ranking PRK official in the Soviet zone) ferociously opposed the trusteeship idea. Contrary to American hawks, neither the men were actual Communists, and they feared a five year trusteeship would allow the Soviets to further spread Communism in Korea. Soviet officials, seeing that the PRK was oddly spared by the USA and opposed to Soviet goals, immediately concluded that the PRK was run by "social fascists."
The Americans begrudgingly agreed to the five-year trusteeship plan, agreeing to retract recognition of the People's Republic of Korea (which was in practice not a cohesive national government, but rather just a cabinet of activists speaking on behalf of local People's Committees in the aggregate). However, this was not to be the end of the dramas in Korea. In 1946, NKVD agents broke into the home of PRK leader Cho Man-sik, the de facto leader of the Korean government in the Soviet zone, placing him under house arrest. Alleging that the People's Committees were social fascists infiltrated by Americans and "Titoists", the Soviets banned the People's Committees. Cho Man-sik was replaced by a man they believed would be a more reliable Communist, Kim il-Sung, who shared the general left-wing impulses of the People's Committees, but was much more aggressive. Whereas the People's Committees spent most of their times legitimizing squatters and compelling compensated land reform, Kim's new government simply declared landlords class enemies and expropriated their lands entirely. Independent media was largely stamped out as a bourgeois construct and Northern Korea's large mines and factories, then owned by Koreans with ties to Imperial Japan, were entirely nationalized. Mob violence against collaborators was generally sanctioned by the new government.
Korean landlords in the North, who had long loathed the People's Committees, now saw them as a lesser evil and simply turned over their stores of funds and weapons to the People's Committees. In the 1946 August Uprising, Northern Korean People's Committee rose up in revolt against the Soviet Army and the new Kim il-Sung government. The NKVD reaction was swift, with the Red ARmy utterly destroying the rebels. The reaction put Kim firmly in charge of the Soviet occupation zone, but sparked outrage in the South. Lyuh, seeing the fate of both his second-in-command and the People's Committees in North Korea, contacted the Americans with a radical plan. Whereas Wallace's dovish tendencies allowed the People's Committees to flourish - he was now like those same committees much more hawkish on the Soviet Union, especially in the wake of the rigged 1947 Polish election.
In March of 1947, the USA officially recognized the People's Republic of Korea as a legitimate government of the entire Korean peninsula, essentially breaking its trusteeship agreement with the Soviet Union. Holding elections, Lyuh Woon-hyung's nationalistic triumph allowed him to narrowly triumph over two right-wing candidates, Syngman Rhee and Kim Gu (who had conveniently split the right-wing vote), in the first presidential election of the People's Republic of Korea. Furious at American "duplicity", the Soviets declared the creation of the rival Democratic People's Republic of Korea in the North under Kim il-Sung. Wallace saw Lyuh as a reliably pro-American progressive, and personally saw it that the new PRK was generously furnished with humanitarian and economic aid, whereas the Soviets largely saw the DPRK as a relatively minor interest in comparison to the unfolding situation in China.