South Korea’s economy is facing significant headwinds from global shocks and renewed trade tensions with the United States. Its deeply integrated position in the global trading system, with exports making up 44% of its Gross Domestic Product (GDP) in 2024, makes it particularly vulnerable to international disruptions.
This economic vulnerability stems from several factors. South Korea relies heavily on energy imports, with oil and natural gas accounting for about 82% of its energy consumption. Roughly 92% of these vital energy resources come from the Middle East. President Donald Trump's second-term tariffs and his administration's conflict with Iran have severely impacted energy markets and disrupted supply chains, directly hitting the Korean economy. The nation's reliance on manufactured exports, especially high-tech goods, also adds to its precarious position. In 2025, South Korea was the world's eighth-largest exporter, with China and the United States, its two biggest trading partners, receiving nearly 40% of its exports. This exposure leaves South Korea highly susceptible to their escalating trade and geopolitical rivalry.
These challenges fit into a broader global economic narrative of increased protectionism and geopolitical instability. The past decade has seen five major shocks: Trump’s first and second-term trade wars, the COVID-19 pandemic, Russia’s invasion of Ukraine, and the conflict in Iran. These interconnected crises have fuelled inflation, disrupted energy supplies, and increased shipping costs worldwide. Unlike many advanced economies, South Korea has maintained high defense spending due to the persistent threat from its northern neighbour. This military expenditure limits its fiscal flexibility compared to other developed nations, further complicating its economic balancing act.
These insights come from an analysis by Anne O. Krueger in a Project Syndicate report. Krueger highlights South Korea's need to maintain its alliance with America, improve relations with China, and expand its own military capabilities. This strategic balancing act is crucial for its economic and national security.
Going forward, South Korea must navigate a complex economic landscape. The US administration’s Section 301 investigations into 16 trading partners, including South Korea, over alleged unfair trading practices could lead to more tariffs. A previous trade deal with the US saw South Korea commit GHS 350 billion in investments to the US, including GHS 150 billion in shipbuilding. This sum is substantial for an economy of South Korea's size, representing a significant portion of its total investment, which was about GHS 567 billion last year. The reopening of the Strait of Hormuz and a return to normal in oil and natural gas markets are critical for near-term growth prospects, as its dependence on imported energy remains a major risk. Investors will closely watch the government’s proposed measures to support and accelerate high-tech industries, which are crucial for diversifying its export base and reducing energy vulnerability.