Lakhvinder Singh
Korea’s economy stands at a critical junction, facing unprecedented challenges not seen in decades. The growth rate is plummeting at an alarming speed faster than expected. While consumer prices rise, public debts soar, and the income gap between rich and poor widens ominously, Korea is heading towards an era of major social and economic instability.
Persistent economic problems stem from the rapid economic growth of the past decades. Benefiting from a skilled and highly educated workforce, along with the global free trade movements and abundant commodities, Korea experienced a remarkable transformation from being one of the poorest to becoming one of the wealthiest nations in the region in a short span. Not anymore. The present situation is becoming increasingly arduous by the day.
Many countries that experienced rapid growth following World War II have shifted towards protectionist measures to confront emerging economic realities. However, as an export-led economy, this option may not be available to Korea. Without a well-trained labour force and access to cutting-edge fourth-generation technologies for global competition, Korea may remain mired in a protracted period of slow growth and declining exports. The current economic slowdown could be structural and continual, rather than cyclical and temporal.
In addition to the decelerating economy, the escalating power tussle between the USA and China is becoming a major concern for Korean policymakers. The USA’s approach of intertwining power politics with economic matters is causing lots of confusion for countries like Korea, both economically and politically. Aligning with the USA may jeopardize Korea’s ability to sell its high-tech products, not just chips, to China in the upcoming years. Already, Korean exports to China are declining rapidly.
Korean economy can only endure so much damage, and the growing trade deficit is already creating serious challenges for Korean companies. In the near future, there might be a crucial moment when Koreans must decide between bolstering their partnership with the USA or prioritizing the preservation of their economy.
Despite President Yoon’s enthusiastic campaign to strengthen Korea’s partnership with the USA, all current indications suggest that Koreans will more likely prioritize saving the economy. Given the extent of the economic slump, Korea faces slim prospects of recovering any time soon. Left with limited alternatives, Korea may ultimately consider aligning with China as a possible course of action.
In recent years, the USA’s capacity to assist South Korea during the ongoing economic crisis has significantly diminished. Consequently, the US economy may have limited capabilities to rejuvenate the Korean economy and reduce its reliance on China. While many countries in the Indo-Pacific region may possess economic resources, they lack the political will and military strength to resist potential repercussions from China for aiding Korea. However, there are two nations, India and Japan, that align well with the criteria of possessing both economic resources, and military capabilities, coupled with political resolve to support Korea. It is crucial for these nations to come forward to help Korea.
In recent months, the Japanese have begun extending assistance to Koreans through new economic and political agreements. However, the situation with India is quite different. India’s approach to its Korean policy seems far off the mark. Indian officials appear to be following a “business as usual” attitude showing no urgency despite growing economic instability on the Korean peninsula.
In response to American efforts to contain China, the Chinese have weaponized trade and investment to exert influence over Indo-Pacific countries. The successful conclusion of the RCEP has accelerated the integration of the entire region into the Chinese economy. Recognizing Korea as the perceived weakest link in the American security architecture within the region, China has unsurprisingly intensified its economic push in Korea in recent months using trade, tourism, and students among others as a means.
The grave economic situation leaves Korea vulnerable to the unrelenting economic pressure imposed by China. The evolving situation in the Korean peninsula and in the broader region is influenced by a multitude of complex geopolitical, geoeconomic, and geostrategic factors making it a highly intricate scenario.
Korea urgently requires a fresh strategy and a global perspective, but time is a luxury it does not have. The power dynamics in the region are shifting rapidly. The risk of Korea’s economic decline potentially triggering a wider disruption in the USA-led security architecture in the region is very real. In this uncertain and challenging situation, it is imperative for regional countries, especially Japan and India, to step up and extend a comprehensive special economic package to support Korea in countering the Chinese push.
What should that economic package consist of?
First and foremost, the economic package should primarily consist of special export concessions for Korean products aimed at reducing Korea’s heavy reliance on Chinese exports for specific products. Notably, South Korea has experienced a significant decline in exports to China recently, necessitating urgent measures to halt the ongoing Korean trade deficit. The persistence of this deficit poses a serious risk of destabilizing the Korean economy and weakening the ability of the political elite to safeguard the country’s way of life.
Secondly, a special economic package must prioritize reducing Korea’s heavy dependence on Chinese supply chains for crucial high-tech raw materials. Currently Korean manufacturers rely heavily on imports of core materials from China, limiting Korea’s autonomy in foreign and security policy decisions.
As an export-led economy, Korea’s stability relies on strong and thriving exports. However, China’s ascent in many traditional manufacturing sectors, where Korea has been a leading force for a considerable time, poses a significant threat to Korean economic stability.
Today President Yoon advocates for Korea’s active role in world politics and economics through the Korea Global Pivotal State policy, it is critical to grasp the true condition of the Korean economy and society and respond appropriately.
Although India has been pursuing an Act East Policy for a while, its comprehensive actions in the region are still lacking. Most of its outreach seems to revolve around trade, investment, and arms dealings with neighbouring countries. It is of the utmost importance that Indian policymakers wake up to the gravity of the escalating Chinese economic influence in this part of the world.
If Korea succumbs to these pressures, it will have far-reaching consequences, impacting everything we hold dear in public life, including democracy and the rule of law. Korea’s reputation as a linchpin of the USA-led security architecture in the Indo-Pacific region is well-founded.
The author is the Director of Peace and Security Studies at the Asia Institute, Seoul, South Korea.
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