Caution Ahead for America’s Fifth Biggest Trading Partner...

What Happened?

Last week South Korea’s President Yoon Suk Yeol declared martial law. Only to have his declaration overturned by a majority vote in Parliament the next day.

That left President Yoon facing impeachment, and the country’s political future uncertain. 

President Yoon claimed, without providing any specific evidence, that members of parliament were sympathizers with North Korea and had paralyzed the government.

The government paralysis charge had some grounding in fact, since the opposition party had blocked Mr. Yoon’s efforts to enact legislation and to pass a new budget.

Mr. Yoon offered no corroborating evidence to substantiate his charges of sympathizing with North Korea, nor did he identify anyone by name who he alleged to have done so.

There hasn’t been a declaration of martial law in South Korea since 1980. And since that experience is still a living memory for many South Koreans, they have viewed President Yoon’s actions with alarm…

Why it Matters

South Korea, home to some 30,000 U.S. military personnel, is a key U.S. ally in the Pacific region against China.

The U.S. government recently called the South Korean–American security alliance ‘the linchpin of peace, security, and prosperity for Northeast Asia, the broader Indo-Pacific, and beyond.’

Political turmoil in South Korea could be seen as an opportunity by the ruling regime of North Korea to take a more aggressive posture against its southern neighbor.

Beyond security, the economic effects of the political crisis were felt immediately. Many South Korean stocks dropped over 7% after President Yoon’s declaration of martial law.

South Korea, the world’s twelfth largest economy, is a major global hub of consumer electronics and semiconductors. Any disruptions to production there could have ripple effects around the world, including here in the United States.

Leading automobile manufacturing states like Michigan, Ohio, Indiana, Kentucky, and California would likely be most affected by volatility in South Korea’s semiconductor industry. That’s because car producers are among the biggest buyers of semiconductor chips.

How it Affects You

South Korea’s already slowing economy is now facing increased political uncertainty. While it remains unclear when South Korea’s political uncertainty will end, caution would be justified in the short term for South Korean markets.

From a security perspective, added political uncertainty increases the risk of escalating tensions between North and South Korea, particularly because North Korea might misinterpret the current situation.

North Korea has ratcheted up rhetoric towards South Korea in the past few months, leaving heightened tensions between the two rival countries, who are still technically in a state of war. Remember, there was no peace treaty signed between the two sides, as hostilities were ended only by an armistice in 1953. 

If North Korea sees the current political impasse in South Korea as a sign of weakness, they could take a more aggressive posture towards their southern neighbor. That means U.S. military forces will likely increase surveillance of North Korea in the coming days.

With wars in Ukraine and the Middle East, this is another ‘hot’ region to watch.