South Korea’s perfect storm - and no one’s at the helm
South Korea stands at a precarious crossroads where economic challenges, security concerns, and shifting diplomatic alliances are converging in ways that could define its trajectory for years to come.
South Korea stands at a precarious crossroads where economic challenges, security concerns, and shifting diplomatic alliances are converging in ways that could define its trajectory for years to come. On top of that, it’s dealing with a political crisis and potentially a looming presidential election where the candidates match the U.S. election’s lack of real choice.
In the past, South Korea has managed to navigate the turbulent waters of global trade and security through a delicate balancing act, maintaining strong ties with the U.S. while ensuring economic cooperation with China. However, the landscape is shifting rapidly, and the country now faces the risk of diplomatic and economic isolation if it cannot adapt to these evolving pressures.
These combined pressures open the potential for maverick joker-like populist politicians with grand schemes of distraction and empty promises that will only exacerbate the situation. South Korea’s sailing into a perfect storm, there’s no one at the helm, and the ones most likely to grab the helm are as competent as a puppet without a handler.
Enter Lutnick
Howard Lutnick’s nomination as U.S. Commerce Secretary signals a potential pivot toward more aggressive trade policies under a second Trump administration. Lutnick, a staunch advocate of protectionist policies, has long supported imposing high tariffs to protect American industries. Given South Korea’s heavy reliance on exports—especially in semiconductors, automobiles, and consumer electronics—any broad-based tariff increases would have a direct and detrimental impact.
In confirmation hearings, Lutnick expressed his desire to bring semiconductors, automobiles, and consumer electronics production back to the U.S. Globalization is over, there’s no cheaper labor, easier environmental regulations, or government subsidies that will keep multinationals from moving production to the U.S. Korea Inc. is not as unitary, culturally influenced, or blatantly nationalist anymore. Moving production to the U.S. is a decision that will come in the interests of shareholders (chaebol family and institutional investors) rather than the nation.
Another concern is the proposed 20% universal tariff on imports and a potential 60% tariff on Chinese goods. While these measures primarily target China, South Korea’s economy is deeply integrated into global supply chains, meaning that any restrictions on China will have indirect yet significant effects on South Korean businesses. Companies that rely on Chinese components for manufacturing could see increased costs, while restrictions on Chinese exports may disrupt demand for South Korean intermediary goods.
Further complicating matters, South Korea’s political instability weakens its ability to respond proactively to these economic threats. The impeachment of President Yoon Suk Yeol has thrown the country’s leadership into chaos, leaving a caretaker government with limited authority to negotiate trade policies or forge new economic strategies.
The first response of the caretaker government was to promise limitless export finance for countries facing challenges - something every supporter of protectionism in the U.S. would immediately point to and say “look at that, they’re taking the mick (if they were from the U.K). It was an incredibly stupid announcement and confirmed to every protectionist that South Korea’s government provides its exporters unfair advantage.
Without leadership that can focus on these issues but instead must focus on domestic politics, it was bound to happen - and will only get worse. Investors and businesses, both domestic and foreign, may hesitate to commit to South Korea until its political landscape stabilizes, exacerbating economic uncertainty.
No more free ride?
Countries have three goals: purpose, security, and wellbeing. South Korea’s purpose has been set in stone since the nation’s founding and has rarely wavered despite challenges from the north. Security has been all but assured by its alliance with the U.S. and the presence of U.S. troops. Since the 1970s, this has allowed successive South Korean governments to focus on the third - economic wellbeing. The ability to focus on economics and relatively ignore security (I emphasize relatively in contrast to North Korea) allowed South Korea to essentially win the right to be the legitimate representative of the Korean people - South Korea won.
However, this free ride on economics has now come to an end - and everyone knows it. This is why there are debates on securing nuclear weapons, questioning the U.S. alliance, becoming a neutral state, and increased concerns regarding China’s intentions. Whether people want to admit it or not, South Korea is going to face major challenges over the next 5-10 years. Challenges that will one day be historical markers for fundamental changes about what is “Korea”.
The immediate signs will be about guns and butter (maybe nuclear butter). The unfolding economic and security pressures on South Korea bring the dilemma into sharp focus—should the government prioritize defense spending to counter escalating threats from North Korea, or invest in economic stability and social welfare to sustain long-term growth? With U.S. threats of abandonment, increased North Korean missile tests, and regional instability, South Korea faces pressure to expand its defense budget, potentially at the cost of infrastructure projects, social services, and economic stimulus measures.
If South Korea over commits to military spending without securing a robust economic foundation, it risks exacerbating domestic discontent and financial strain. Conversely, under funding defense at a time of growing threats could expose the country to strategic vulnerabilities. Navigating this trade-off will require nuanced policy making, balancing immediate security needs with long-term economic resilience - which cannot be done during political instability. This opens the country to political populism - the greatest risk.