Yoon Suk Yeol, president of South Korea, set his country’s economy back ten centuries in six days, and increased the chances that the following ten years will be lost.
The government’s urgent request to remove Yoon’s resignation and impeachment for his crazy martial law declaration later on December 3 is the focus at this time. When the dust settles, nevertheless, the actual collateral damage will be to Asia’s fourth-biggest business.
On Monday, the day before Yoon’s determined stunt, South Korea was now carrying serious existing conditions into a 2025 some Seoul policymakers despair. Between China’s decline and Donald Trump’s coming trade conflict, South Korea’s business may find itself in harm’s way first and often.
Record household debts, which is putting strain on consumer spending, complicates the way forward. Additionally, South Korea has a gender pay gap and a labor-intensive workforce that prevents technology.
Korea’s fertility level is the lowest everywhere. A handful of family-owned conglomerates, or chaebols, continue to dominate the market, making it hard for start-ups to grow and destroy the government’s export-driven development model.
And the monetary system needs major changes to end the” Korea cheap” that underestimates Kospi index prices.
Problem is, Yoon’s antics really proved traders doubting Korea’s eagerness for global night right. His government is now even more in the lame-duck area than it was three days ago, also if Yoon can prevent being impeached — a great “if.”
It’s difficult to imagine how Yoon will survive this unless something else is dropping that we haven’t already discovered,” says Eurasia Group scientist Jeremy Chan.
As ideal as we can tell, Yoon’s martial law campaign was motivated by his disappointment with opposition parties that are stymieing his plan. The issue was considerably worsened by Yoon. Hope all-out gridlock today.
This new complication in Seoul elections appeared to be apparent to The Bank of Korea. Straight after Yoon declared martial law, BOK Governor Rhee Chang-yong pledged “unlimited cash” to calm industry. On Wednesday, he set up an urgent meeting to discuss how the BOK may protect the market from further political scheming.
” From a near-term plan aspect, apart from the market problems, doubt could also come in the event of government changes”, says Goldman Sachs scientist Goohoon Kwon. On Thursday, Defense Minister Kim Yong-hyun resigned.
According to Bank economists, in the best-case situation,” the negative effects to the economy and financial industry may be short-lived as uncertainties on the political and economic environment may be quickly mitigated on the back of strategic policy response.”
However, Moody’s Ratings ‘ economist Anushka Shah adds that a “prolonged period of political conflict that affects economic activity and leads to work stoppages would be credit negative.”
The significance of the Korean victory, both for domestic politics and the external sector, is a key climax. The domestic political unrest will only exacerbate the bearish sentiment surrounding the Korean victory, but Alvin Tan, a currency strategist at RBC Capital Markets, believes that the growth slowdown and potential US-China trade war in the coming year will continue to be the main drivers.
A wiser leader than Yoon might have examined his mediocre approval rating and adjusted his policies accordingly. Or create new ones that might appeal to voters and opposition parties. Instead, Yoon threw a tantrum, leaving many of Korea’s 51 million people wondering if Yoon’s support rate is way too high.
Yoon also spewed a dose of Trumpian skepticism by warning of “anti-state” militias sympathetic to North Korea’s plot against him. Not a wise choice from a leader who makes Shigeru Ishiba and Joe Biden the most well-known Americans in the world right now.
This was” an act of political desperation”, Chan says. ” It wasn’t about North Korea or social order — despite Yoon’s claims”. In the end, Chan adds, Yoon was” trying to bring all legislative proceedings to a halt” by calling on the National Assembly.
The issue is that South Korea’s government functions are squandering up at arguably the worst possible time. Along with China exporting deflation, Seoul is bracing for US President-elect Trump’s coming tariffs. Trump has threatened that the 60 % tariffs against China could be the start of a global arms race.
Trump has telegraphed 100 % taxes on automobiles made in Mexico. Car-making giants in Korea and Japan worry — for valid reasons — that they’re next.
Concerned about the fates of Hyundai, Kia and others, Yoon has been scrambling for a meeting with Trump. In a bid to get a Mar-a-Lago tee time, Yoon dusted off his golf clubs for the first time in eight years.
Yoon’s government even hired the lobbying firm Susie Wiles, the incoming White House chief of staff, worked for. The Washington embassy of Korea hired Mercury Public Affairs to build connections with the incoming White House, according to Korean media.
Trump, of course, is less of a bridge-builder than a geopolitical wrecking ball. Still, Yoon has studied up on former Japanese Prime Minister Shinzo Abe’s Trump bromance.
Abe became the first world leader to hurl a long way to New York’s Trump Tower to kiss the ring in November 2016. The stunt also caused Abe to sit next to Trump at Group of Seven meetings and other global confabs, earning him a spot there.
If Yoon looked closer, he’d see how little the late Abe got in return for his subservience. Trump ignored Abe’s pleas and still abandoned the Trans-Pacific Partnership trade pact, a cornerstone of Japan’s effort to contain China.
Abe’s acquiescence didn’t earn Tokyo a pass on the Trump 1.0 trade war. Trump continued to try to shake down Abe for US$ 8 billion in annual payments to keep American troop levels in Japan. It didn’t stop Trump from palling around with Kim Jong Un, legitimizing North Korea’s murderous regime at the expense of Japan‘s national security.
Yet Trump 2.0 is just one of South Korea’s biggest economic challenges. The other is how the economy is bouncing off course because of its already-existing circumstances.
The first half of Yoon’s five-year term did little to raise Korea’s economic game. He’s done little, if anything, to level playing fields to help small-and-medium-sized companies grow into larger ones.
He hasn’t made any discernible progress in lowering the nation’s crippling debt, increasing worker productivity, empowering women, and raising the average income.
Yoon hasn’t been able to dispel MSCI’s reservations about Korea Inc. Yoon argued in a uniquely assertive way earlier this year that the world’s largest index company should establish South Korea as a developed nation, a designation that would entice tidal waves of global capital into won-denominated assets.
Back in March, Yoon pledged to scrap outdated regulations, loosen limits on corporate ownership, strengthen capital markets, increase currency-trading hours, boost transparency and even tolerate short sellers.
MSCI went away unimpressed. According to its analysts,” these efforts will be subject to consultation with market participants once in effect,” as they stated in June. In other words, Team Yoon needs to carry out the Big Bang without resorting to a supply-side explanation.
Unfortunately, Yoon is only the most recent leader to talk a lot of money-savings and talk little. Like his five predecessors over the last 20 years, Yoon quickly realized the difficulty and risk of clashing with Korea’s chaebol-industrial complex and demurred.
This persistent complacency comes at a high price. In any tally of major economies courting a , Japan-like lost decade , through complacency and political distraction,  , South Korea , deserves a primary place. Yoon, part of this sad continuum, also let the BOK run the show.
So did Moon Jae-in, who was elected in 2017 to restore faith in the Korean economy. Moon began with a bold plan to champion” trickle-up economics”. Higher corporate taxes were included in the plan to better distribute wealth and employment opportunities.
The strategy spearheaded by Margaret Thatcher, Ronald Reagan, and Abe decades earlier had a reversed impact due to Moon’s emphasis on enriching the middle class. Yet Moon, too, saw the magnitude of the task of taming Korea Inc ,  , — and he backed off.
The same was true for Park Geun-hye, president from 2013 to 2017. Not only was she Korea’s first female president, but also the daughter of former national leader Park Chung-hee, who built the chaebol-led model that still dominates today back in the 1960s and 1970s.
Park Geun-hye took office with grand plans to dismantle her father’s economic system. She talked of devising a more” creative” model of entrepreneurship and shifting , tax incentives , toward startups.
Park planned, too, to strengthen antitrust enforcement , and penalize big companies for hoarding profits that could be used to boost paychecks and fund new cutting-edge research and development.
Her father’s export-driven development strategy placed a premium on loans to domestic businesses and shielded domestic industries from global competition. The strategy borrowed from the” Asian tigers” playbook Japan had written.
Of course, Park Chung-hee’s legacy is back in the news this week. The upheaval that occurred at the time of his 1979 murder occurred at the same time as a previous declaration of martial law.
Over time, Korean officialdom was captured by the home-growth giants Park , Chung-hee’s policies created. But once daughter Park Geun-hye settled into the presidential Blue House, 38 years after her father’s assassination, she too decided change was too difficult and risky.
Rather than upending the chaebol system, Park got co-opted. By 2017, she was  , impeached and jailed , in a scandal involving Samsung leader Lee Jae-yong. Both have since been pardoned, much to the dismay of many Korean voters.
Before Park, Lee , Myung-bak, president from 2008 to 2013,  , pledged to generate more economic energy from the ground up. Voters hoped that, as a former CEO of Hyundai Engineering , and Construction, Lee had the know-how to shift growth engines away from exports toward domestic demand. Lee demurred, siding with the chaebols that produced him.
If only these leaders had swayed the wind in a significant way, Korea might not be struggling to raise its prices and compete in the era of China. Even if Yoon manages to cling to power, somehow, his odds of elevating the economy to greater heights in the 887 days he’d have left in office are slight, at best.
What Yoon has accomplished is placing South Korea in the shoes of Asian martial law enforcers in a manner that international investors won’t find appealing. These include Indonesia, Myanmar, the Philippines, Thailand – and now South Korea.
Yoon reassured markets about the Korean discount while also bringing up a past Kospi investors would prefer not to think about, such as 1948 martial law episodes.
One silver lining:” The swift reversal of the martial law underscores the resilience of South Korea’s institutions”, write analysts at BMI, a Fitch Solutions Company.
We anticipate only temporary effects for the economy and financial markets as the Bank of Korea and the Ministry of Finance have responded quickly by reassuring investors, according to BNI. Notably, the central bank has pledged to increase short-term liquidity and take steps to stabilize the FX markets, which is in line with our opinion that the risks associated with the South Korean victory should be kept under control for the time being.
Perhaps, but the effects of Yoon’s insane and selfish act may make South Korea worry about where and how all that potential was lost in a decade.
Follow William Pesek on X at @WilliamPesek