It’s difficult to imagine any Eastern country more appreciative of the 2024 era than South Korea.
President Yoon Suk Yeol declared martial law just the last month, reversed six hours later, was impeached in parliament amid large street protests, and is now facing a historic arrest permit.
As if that weren’t enough conflict and woe, Korea experienced its worst local aircraft disaster in more than 20 years, killing over 181 people and invoking grave fresh concerns about the safety of Asian skies.  ,
Korea’s really nasty December deepened what was already anything of a midlife crisis time for Asia’s fourth-biggest business. This may be because good as it gets as a madly uncertain 2025: Seoul’s very destructive elections are about to meet with the upcoming Trumpian surprise.
Even if, best-case scenario, “increased US protectionist measures imply lower , taxes on , Korean , imports than on various trading companions”, says analyst Brian Coulton at Fitch Ratings, “declining demand from China and the US, which , collectively accounted for around 40 % of , Korean , commodities exports in , 2023, may adversely affect exports”.
Korea will be directly at the heart of the collateral damage zone of potentially weaker Chinese demand, despite the US president-elect’s threats of 60 % tariffs directed at China. Japan, too, but then Tokyo isn’t embroiled in a political imbroglio the likes of which Seoul hasn’t seen in decades.
Something that Japan and Korea have in common, though, is being snubbed by Trump. Trump has been turned down by Yoon and Shigeru Ishiba for a Mar-a-Lago tee time since his re-election on November 5.
Both Yoon and Ishiba have watched as Trump met with a parade of world leaders, including Canada’s Justin Trudeau, France’s Emmanuel Macron, Ukraine’s Volodymyr Zelensky, Hungary’s Viktor Orban, Argentina’s Javier Milei and even the UK’s Prince William. But so far, he’s had no time for Washington’s top North Asian allies.
Anyone’s guesses whether Trump intends to impose tariffs on Seoul and Tokyo. Or that Trump’s hopes of a “grand bargain” trade deal with China take precedence.
Seoul’s distracted legislators won’t be doing much to improve Korea’s competitive game as Yoon awaits a possible arrest and his fate in the courts in the months to come.
Even before Yoon’s bizarre martial law decree on December 3, his People Power Party wasn’t getting much done to level economic playing fields, address near-record household debt, increase productivity, empower women or improve corporate governance.
Yoon’s first 966 days in office were anything but a reformist whirlwind. In this way, there are no guarantees that his party will be able to come up with a comprehensive policy plan in response to the Trump 2.0 shock.
The Bank of Korea will become even more dependent on that. The BOK has taken the lead in managing one of the world’s most open major economies since Yoon took office in May 2022. Governor Rhee Chang-yong is now in the hot seat as never before due to the political vacuum in Seoul.
Before Yoon’s short-lived martial law stunt, Seoul was planning to shore up key sectors as headwinds from Washington intensify. A package of support measures is included in the chief among them for the crucial semiconductor industry.
Korea, which is home to the world’s leading memory chip manufacturers Samsung Electronics and SK Hynix, is more unsure than most other nations about Trump’s tariff plans. Finance Minister Choi Sang-mok stated on December 2 that” the fate of our industries will be decided in the final six months.”
The government must change from a supporter to a partner working alongside businesses, Choi continued, “given the current challenges, including global economic shifts under the incoming US administration, competition from emerging countries, and the rapid reorganization of global supply chains.”
Since then, though, Choi has been elevated to acting president, the third to serve as president this month. ” So South Korea’s most bizarre and explosive political crisis in decades just got even weirder”, says Ian Bremmer, president of Eurasia Group.
That leaves his successor with the responsibility to spearhead support for semiconductor companies, from tax incentives to fiscal assistance, to advance the tech ecosystem. And to do so in the midst of growing political slurs.
These initiatives range from top-down initiatives to subsidizing the costs of burying transmission cables for semiconductor clusters in cities like Yongin and Pyeongtaek.
Already, Choi is doing his best to reassure the public. We are confident that our robust and resilient economic system will enable quick stabilization, Choi said on December 27.” We are facing unexpected challenges once more.
Yet Choi inherits a 2025 budget that’s US$ 2.8 billion less than the government had hoped for. In addition, he now manages a second national crisis as a result of the Jeju Air jet‘s collision.
According to economist Gareth Leather at Capital Economics,” There are already indicators that the crisis is having an impact on the economy.” ” The crisis is unfolding against a backdrop of a struggling economy”, he says.
Gross domestic product, Leather notes, is expected to be just 2 % this year amid slowing global growth. ” Longer term, political polarization and resulting uncertainty could hold back investment in Korea”, Leather says, pointing to how Thailand’s turmoil since a 2014 coup undermined its economy.
Other economists are more optimistic. Yoon Suk Yeol is a side effect of the growth, according to economist Park Sang-in at Seoul National University, and we have come from being an underdeveloped nation to one of the world’s most dynamic economies in a short period of time. His crazy actions were resisted by Korean society because it was mature enough.
According to BMI Country Risk & Industry Research,” we anticipate only moderate effects on the economy and financial markets as the Ministry of Finance and the Bank of Korea have responded quickly by reassuring investors.”
Notably, according to BMI,” the central bank committed to boosting short-term liquidity and enacting measures to stabilize the foreign exchange markets, which aligns with our view that risks around the South Korean won should remain contained for now.”
Krishna Guha, an economist at Evercore ISI brokerage, argues that” South Korea’s democratic institutions and culture have withstood the stress test. However, the fact that it even occurred is extraordinary and troubling.
However, now that Yoon is facing an arrest warrant, it is important to know when and how the political crisis ends. Its longevity is key to the Korean wo n’s outlook.
” If domestic political instability continues and external credibility in Korea decreases, the wo n’s price could fall further”, says economist Seo Jeong-hoon at Hana Bank.
According to economists at T Rowe Price, “political turmoil appeared to be continuing to weigh on investor sentiment in South Korea.”
Even before the blow-after-blow that hit Korea in December, Yoon’s presidency had been awash in challenges and controversies. Soon after Yoon’s rule, the Korean won, North Korea launched a wave of provocations, and Seoul received heavy criticism for handling the 159-person crowdcrash that killed 159 people on Halloween 2022.
All too quickly, Yoon’s approval rating fell below 30 %, the danger zone for any leader in Seoul promising bold structural reform.
Yoon is the fourth leader of Korea to ascend to power since 2008, promising to produce more economic energy from the top rather than the bottom down. Broadly speaking, that meant taking on the” chaebol system” led by family-owned behemoths like Samsung that helped propel Korea into the ranks of the top 12 economies.
The reality is that Korea Inc. is aware that a lot of what it does well has been commercialized. China and other rising Asian powers are now rivals in cars, electronics, robots, ships and popular entertainment. Taiwan is constantly upping its innovative game, while startups like Indonesia and Vietnam are boosting the competitiveness and dynamic of the race for tech “unicorn” startups.
The best way for Korea to maintain its high standard of living is to create innovations that increase the rate of economic growth. That’s why Yoon and the three leaders who preceded him pledged an innovative “big bang” to move Korea into higher-value sectors.
Between 2008 and 2013, Lee Myung-bak came and went without fundamental changes to the chaebol system. Then came Park Geun-hye, Korea’s first female president. In 2013, she took office with bold talk of devising a more” creative” economy.
Park vowed to expand tax breaks for startups, strengthen antitrust laws, and punish large corporations for stealing profits from employees who squander money.
Park ended up going easy on the chaebols. Yet she did succeed in enlivening Korea’s startup economy. Her efforts to increase the cash flow to innovators helped make Korea one of the top 10 incubators for tech unicorns, or businesses with market capitalizations greater than US$ 1 billion.
Moon Jae-in, Park’s successor, expanded the program. The issue is that startups continue to be sucked into the cash they need to become major game-changers. That’s still Korea’s dilemma today.
It has loads of startups, but the conglomerates “don’t often allow space” for them to thrive and become medium-sized enterprises, notes Yukiko Fukagawa, an entrepreneurship expert at Waseda University.
Moon took power in 2017 with ambitious plans to pursue” trickle-up economics”. Moon, a more liberal leader than the previous two, aimed to stifle economic control from Korea’s rigid corporate structure to boost competition.
His signature strategy of enticing the middle class was essentially the opposite of the strategies promoted by Trump, former Japanese Prime Minister Shinzo Abe, and Ronald Reagan decades earlier. However, when Moon realized the difficulty of the task and the wacky political consequences that would follow, he backed away and delegated economic management responsibilities to the BOK.
So has Yoon these last 31-plus months. Now, as acting President Choi manages dueling crises, he faces a wildly uncertain 2025 – both domestically and internationally.
In spite of the political unrest, Korea Inc. can raise its game. According to Sohn Kyung-shik, chairman of the Korea Enterprises Federation,” companies must also make more proactive efforts to economic recovery and job creation during these difficult times.”
In top-down Korea, though, that might be easier said than done. Particularly with domestic politics in complete chaos as Korea’s” Trump trade” approaches.
Follow William Pesek on X at @WilliamPesek