ED Preventing industrial hollowing out

President Lee Jae Myung takes notes during a meeting with business leaders in the presidential office in Yongsan, Seoul, Sunday. Yonhap

The joint fact sheet released last week by the White House calls, among other things, for Korea to invest $350 billion in the United States, including $150 billion in the U.S. shipbuilding sector, in return for lowered tariffs.

At home, however, the scale of these investments has raised concerns about a potential industrial hollowing out. President Lee Jae Myung’s meeting with business leaders on Sunday to follow up on the trade agreement reflected this sentiment.

Addressing worries over shrinking domestic investment as a consequence of Korea’s large outflows to the U.S., Lee expressed hope that Korean companies would take meaningful steps to ease such concerns. “Other things being equal, I hope our business leaders can pay greater attention to domestic investment,” he said.

Companies responded swiftly with massive investment pledges. Samsung Group announced 450 trillion won ($310 billion) in domestic investments over the next five years to expand operations at home. Hyundai Motor Group unveiled a 125 trillion won domestic investment plan for 2026-30 focused on research and development and advancing technologies related to artificial intelligence, robotics and autonomous vehicles. SK Group, Hanwha Ocean and HD Hyundai also unveiled domestic investment plans.

If realized, these commitments will create jobs, stimulate the economy and help ease or prevent an industrial hollowing out. However, it is too early to be satisfied with these announcements. Plans remain only plans until they are carried out.

The role of government is therefore critical in ensuring these corporate action plans produce meaningful results in the years ahead. In a free economy, there is not much the government can do to directly revive economic activity. Prosperity and growth ultimately depend on the private sector. Even so, there remains a crucial role that only government can play: facilitating an environment in which the private sector can continue to grow, expand and contribute to the economy.

How can a government serve as a facilitator of the economy?

Lee understands this need well. During Sunday’s meeting with business leaders, he pledged to do his utmost to remove institutional and legal obstacles that hinder private sector activity. “The government should help companies do business freely and creatively so they can compete against global competitors. I think this is the key role that only government can play,” he said.

Lee promised deregulation and other measures to support corporate activity, saying he is ready to eliminate barriers once they are brought to his attention. But he also drew a firm line, making it clear that his administration has no intention to introduce tax cuts or intervene in labor-management relations.

He argued that companies complaining about taxes do not deserve the title of global firms capable of competing worldwide. “This explains why I don’t like tax cuts,” he said.

On labor relations, Lee expressed his belief that workers and management can pursue shared gains. “There are certainly ways for both sides to win, but these possibilities are being ignored as they confront each other without seeking mutually beneficial solutions,” he said. His remarks may reflect the fact that labor unions are among his core supporters.

However, the president appears to be brushing aside the concerns of Korean exporters. Korean automakers, for example, have suffered snowballing deficits since April, when the U.S. government imposed a 25 percent tariff on cars manufactured in Korea. Previously, Korean vehicles had been exempt under the Korea-U.S. Free Trade Agreement.

Under last week’s new trade deal, reflected in the joint fact sheet, Korean cars manufactured outside the U.S. will face a 15 percent tariff. The trade environment has become increasingly challenging for Korean exporters due to higher U.S. tariffs under President Donald Trump and growing pressure to localize production in the United States. At home, hard-line labor unions further burden Korean automakers.

The semiconductor industry is also suffering a dual blow. Externally, it faces Trump tariffs. Internally, it remains constrained by the 52-hour workweek rule. The ruling Democratic Party of Korea (DPK) and the main opposition People Power Party (PPP) remain deadlocked. The PPP is pushing to exempt the semiconductor sector from the rule, while the DPK refuses to yield.

Facing such a daunting environment — one that could determine the nation’s economic future — all stakeholders must stand on a united front. Each side should be willing to make concessions rather than insisting on its own interests at the expense of others. Lee must demonstrate leadership by persuading not only the ruling party but also his opponents to compromise so that the economy can break through against the odds.