Korean business leaders watch U.S. election as key economic indicators fluctuate

As the U.S. presidential election approaches, South Korean business strategists are closely monitoring its potential impact across the Pacific. An executive at a leading South Korean conglomerate said, “A Kamala Harris victory could ensure the continuation of the Inflation Reduction Act (IRA) and potentially bring a corporate tax hike, which raises several uncertainties.” The executive highlighted concerns about the U.S. political landscape, global macroeconomic conditions, and industry demand.

South Korea’s semiconductor and automobile industries have supported the nation's economy, setting a record $57.9 billion in exports in August. However, concerns persist among major companies, including Samsung and SK Group. While semiconductors, which account for roughly 20% of Korea’s exports, have maintained strong performance, other sectors have faltered. An analysis by The Dong-A Ilbo found that operating profits for key industries like batteries, steel, and aviation have plummeted year-over-year, based on the semi-annual reports of the top 100 companies by sales.

Business leaders cite three major concerns: the U.S. election, a potential global economic recession, and the risk of artificial intelligence (AI) bubble bursting. Regardless of whether a Republican or Democrat wins the White House, analysts expect that the "America First" policy will gain further momentum, rooted in economic fears among the U.S. working and middle classes. The decline of American manufacturing, exacerbated by the flood of cheaper Chinese goods, has intensified dissatisfaction, particularly in the Midwest. This could force South Korean firms to increase investments in the U.S. while distancing themselves from China. Under the Biden administration, four South Korean giants that committed 104 trillion won in U.S. investments likely to rise amid tighter trade regulations.

Meanwhile, a global economic slowdown looms large, with fears of recession in the U.S. and China—two of the world's largest markets—fueling expectations of widespread layoffs at multinational companies. Reduced consumer spending worldwide would further strain South Korea’s export-dependent economy, with automobiles, smartphones, home appliances, and televisions facing potential downturns, compounding domestic challenges where consumption is already weak.

The AI boom, which has helped prop up a global economy grappling with high inflation and interest rates, also shows signs of stress. Fluctuations in the stock prices of AI-driven companies like Nvidia are frequent, sparking fears of a bubble in the sector.

The convergence of these factors—U.S. political developments, a global recession, and uncertainty around AI—presents a uniquely worrisome scenario. A global recession could amplify protectionist measures under an "America First" policy, while intensifying U.S.-China tensions could abruptly halt the current "spring of semiconductors," driven by AI demand. A severe downturn in exports could leave semiconductors vulnerable, no longer the safe harbor they once were. Reflecting these concerns, Korean brokerage firms have already downgraded their stock price targets for Samsung Electronics, whose portfolio spans semiconductors, smartphones, and home appliances.

Despite the shifting global landscape, neither South Korea’s government nor political circles appear fully attuned to these changes. Eight major economic organizations have expressed concerns over amendments to the Commercial Act, yet these warnings have been largely overlooked. Furthermore, no concrete support measures for semiconductor laws or grid expansion have emerged. It may be too late for reactive measures when the economic storm hits.