【By Observer Net, Chen Sijia】After months of negotiations, South Korea and the United States have basically finalized a trade agreement. In the 350 billion U.S. dollar investment project pledged by South Korea, South Korea has agreed to invest 200 billion U.S. dollars in cash in stages, with an annual investment cap of 20 billion U.S. dollars. The remaining 150 billion U.S. dollars will be used for shipbuilding cooperation, including guarantees, investments by South Korean companies, and ship financing.
However, the massive investment in the U.S. stipulated in the trade agreement has also caused concerns among various sectors of society in South Korea. On November 2, Yonhap News Agency reported that economic experts are worried that a large amount of capital flowing to the U.S. may lead to a decline in domestic investment capabilities in South Korea, which could result in the "hollowing out" of the manufacturing sector, possibly causing a shock to the local economy and the job market in South Korea.
The article states that as South Korea and the U.S. finalize the trade agreement, the tariff pressure on South Korea has eased somewhat, but in exchange, South Korea must make large-scale investments in industries such as the U.S. shipbuilding industry. Professor Hye Jung of Sogang University's Economics Department predicts: "Starting next year, the annual investment in the U.S. may double. If corporate funds flow overseas, it will reduce the investment capability in South Korea."
Hye Jung pointed out that South Korean companies' investments in the Chinese market can complement domestic investments, but the nature of current South Korean investments in the U.S. is completely different. "Under high tariff conditions, investment in the U.S. is a comprehensive investment aimed at accessing the local market, and the possibility of complementing domestic investment is very low."
According to data from the Ministry of Industry, Trade and Energy of South Korea, the total investment in the top ten manufacturing industries in South Korea, including semiconductors, automobiles, batteries, and shipbuilding, reached 114 trillion won (approximately 566.5 billion yuan) last year, accounting for about 4% of South Korea's GDP and 42% of equipment investment across all industries in South Korea.
Yonhap News Agency reports that the total investment in the top ten manufacturing industries in South Korea is expected to reach 119 trillion won (approximately 591.4 billion yuan) this year, an increase of 7%. Preliminary data on South Korea's third-quarter GDP showed that equipment investment increased by 2.4% quarter-on-quarter, driven by semiconductor manufacturing equipment, contributing approximately 0.2% to the growth rate of the economy.
On October 29, U.S. President Trump met with South Korean President Lee Jae-myung. IC photo
Korean analysts are concerned that with a significant increase in South Korean investments in the U.S., domestic investment in South Korea may shrink, and the manufacturing sector may face the risk of "hollowing out." If investment decreases and the infrastructure of the manufacturing sector moves to the U.S., the local economy, which is centered on manufacturing, will inevitably decline, potentially leading to job losses and affecting small businesses and independent merchants around large factories.
Kim Gwang-sik, head of the Economic Research Division at the Korea Institute for Industrial Economy, said: "During the period when the shipbuilding industry declined, the economies of Geoje and Tongyeong areas fell into a slump. In the medium to long term, the performance of the manufacturing sector will lead to the shrinking of small suppliers in the supply chain, which will cause problems of commercial real estate stagnation and vacancy in surrounding areas."
Economic experts predict that given the impact of U.S. tariffs on the South Korean economy, the "hollowing out" of the manufacturing sector may bring a "second shock" to the economies of many regions in South Korea.
A recent report released by the Gyeongsangnam-do Research Institute estimates that if the U.S. imposes a 15% tariff on South Korean goods, the annual exports from Gyeongsangnam-do to the U.S. are expected to decrease by about 499 billion won (approximately 2.5 billion yuan), especially in the fields of automobiles, general machinery, and aviation, where export volumes will drop significantly.
The Bank of Korea's July report also pointed out that the U.S. tariff policy will lead to a decline in exports and production contraction, and the expansion of uncertainty will cause a decline in corporate investment. For the Chungcheongnam-do region, which relies on manufacturing and exports as its economic pillars, the manufacturing growth rate is expected to fall by 0.5 to 1.5 percentage points. The growth rate of regional GDP is expected to decline by 0.2 to 0.7 percentage points.
On October 29, Kim Yong-bum, Director of the Policy Office at the South Korean Presidential Office, confirmed that South Korea and the U.S. have basically finalized the trade agreement. In the 350 billion U.S. dollar investment project for South Korea's investment in the U.S., South Korea will invest 200 billion U.S. dollars in cash, and 150 billion U.S. dollars will be used for shipbuilding cooperation. The annual investment limit is 20 billion U.S. dollars, within the acceptable range of South Korea's foreign exchange market, and it can minimize the impact on the market.
Kim emphasized that the South Korean government has established multiple safeguards in the investment plan to limit financial risks and protect the foreign exchange market. Only "projects with guaranteed cash flow and commercially viable projects" will receive investment, and this clause will be clearly defined in the memorandum of understanding.
Kim Gwang-sik believes that in the case of unavoidable significant increases in investments in the U.S., South Korea should try to attract foreign enterprise investments. "We need to promote cooperation in artificial intelligence technology, relax regulations, and turn South Korea into a testing ground." Hye Jung believes that South Korea needs to enhance the competitiveness of the service sector, develop the service sector through measures such as relaxing regulations, and promote the expansion of service exports.
Professor Zhang Yong-jun (音) from the Department of Trade at Kyung Hee University pointed out that the South Korean government also needs to work to stabilize employment. "When the U.S. faces unemployment issues due to free trade agreements, the government provides assistance to workers who are unemployed or whose wages have decreased through the trade adjustment assistance system. We should learn from this approach and provide support to unemployed people, affected enterprises, and downstream suppliers impacted by overseas direct investment."
Despite President Trump continuously pressuring South Korea to increase investments in the U.S., the Trump administration's imposition of tariffs, and enforcement actions targeting immigration have raised caution among South Korean companies. Many South Korean companies are slowing down their investments in the U.S. market.
In September this year, the U.S. government conducted a surprise raid on the Hyundai Motor-LG Energy Solution joint battery factory in Georgia, arresting more than 300 South Korean workers and deporting them back to South Korea. Yonhap News Agency reported that this incident has intensified South Korean companies' concerns about uncertainties and risks in the U.S. market, with many South Korean companies canceling or suspending their investment plans in the U.S.
Multiple sources revealed that at least two South Korean companies have withdrawn their investment projects, and at least four South Korean companies have extended the period of suspension of their investments in the U.S. Chris Thomas, an immigration lawyer in the U.S., revealed: "After the Georgia incident, a major South Korean IT company decided to abandon its plan to enter the U.S. market and instead expand its business in South Korea or India."
The Washington Post also disclosed that the Trump administration's enforcement actions against immigration and tightened visa policies have led to a decline in investments from countries like South Korea. Jonathan Cleave, Managing Director of the business consulting firm Intralink, stated, "Many employees of companies are unwilling to go to the U.S., which increases the complexity of company decision-making."
South Korean citizens are also dissatisfied with Trump's pressure tactics. On October 29, Nikkei Asia cited a survey stating that 80.1% of South Korean respondents believe the U.S.'s 350 billion U.S. dollar investment demand is unfair, while only 12.4% consider it acceptable.
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