Populist promises, geopolitical crisis: Experts say winter is coming for Korea’s economy in 2024

Posted on : 2023-11-23 17:13 KST Modified on : 2023-11-23 17:13 KST
Concerns about the influence of politics on the economy are on the rise once again as we make our way into what could be dubbed the world’s political season
Former US President Donald Trump. (AP/Yonhap)
Former US President Donald Trump. (AP/Yonhap)

“Winter is coming,” said Lee Si-wook, an international trade expert, at a press conference organized by the Korea Development Institute at the start of the Trump administration in February 2017, borrowing a phrase from the popular US TV series, “Game of Thrones.”

Just like the incalculable dangers featured in the show, Lee warned that the Korean economy was facing unpredictable uncertainties. On Wednesday, Lee told Hankyoreh that “winter is coming” again, referring to South Korea’s economic situation in 2024.

Concerns about the economic ramifications of politics are on the rise once again as we make our way into what could be dubbed the world’s political season, with a series of high-profile elections scheduled around the world, including in the US.

Populist promises are being made in an economy that is already struggling with high inflation and interest rates, thereby increasing market volatility and raising concerns that the Korean economy could be swept up in an unpredictable international situation and the possibility of a deepening geopolitical crisis.

In other words, Korea’s economy, characterized by its high level of external independence, is staring down the barrel of internal and external obstacles before it has even begun to recover in earnest.

According to domestic industry and economic agencies on Wednesday, the biggest concern is the growing uncertainty of the US-China relationship.

Despite having industrial bases for Korean chip and battery-making in both China and the US, up until now the Korean government and businesses have adopted a pro-US stance strategy of going virtually all-in on “Bidenomics.”

But now, not only is the Taiwanese election coming up in January 2024 reinflaming the US-China conflict, but there’s a growing possibility of a new administration in Washington — both factors that stand to threaten Korea’s economic ties, as well as its built-up investments in the US.

At the center of this politico-economic conundrum is the question of whether Trump will return to the White House. Government departments and major economic organizations, as well as private companies, are watching the prospect of the “America First” president returning to power with bated breath.

A look at “Project 2025” by conservative think tank Heritage Foundation, which Trump’s aides have worked on in preparation for a second term in office, shows that such concerns are not blown out of proportion.

The project calls for higher tariffs on imports, more restrictions on exports to China, and a complete repeal of green energy policies such as the Inflation Reduction Act. It even includes a plan to sell off the US Federal Reserve’s balance sheet (quantitative easing), which would have the effect of raising policy interest rates.

“I think the support promised by the US government through the Inflation Reduction Act may be cut rather than scrapped,” commented an executive of a major Korean battery company that has invested trillions of won in local production facilities in the US. At the same time, the executive said that a market slowdown in areas including the transition to eco-friendly electric vehicles would be “unavoidable.”

Korea’s economy also faces more challenges going into next year in the form of the ongoing war in Ukraine, which has contributed to high inflation, and the upcoming major elections in Indonesia and India — two countries that produce key commodities like batteries and are seen as alternatives to the Chinese market.

In its latest country report on South Korea, the International Monetary Fund identified “rising geopolitical tensions” and “intensification of regional conflict(s)” as potential risks that are likely to occur in the future and have a significant impact on the Korean economy.

The political atmosphere ahead of the Korean general election in April 2024 will also prove to be a problem. With only months to go before the election, South Korea is seeing unprecedented campaign promises, including a ban on short selling.

In a recent report, Goldman Sachs called the upcoming election in Korea a key potential domestic risk factor from a macro perspective, adding that the outcome of the election could have broad macro implications, as the ruling and opposition parties currently have markedly different policy priorities.

“It’s hard to predict what will happen, including whether Trump will win or not, and what will happen with Taiwan,” said Song Yeong-kwan, a senior research fellow at the Korea Development Institute.

“The government should be prepared for the worst-case scenario,” he suggested.

By Park Jong-o, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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