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Korea faces new test of credibility in global supply chain

By Jo He-rim
Published : Dec. 4, 2024 - 15:21

Citizens join a protest at the National Assembly in Yeuido, Seoul, hours after President Yoon Suk Yeol's martial law was lifted, Wednesday. (Yonhao)

Although South Korean President Yoon Suk Yeol's surprise declaration of martial law did not make it even through the night, such political unrest in a country home to leading tech giants could result in long-term market fallout, potentially weakening Korea's role in the global supply chain of critical technologies such as chips, experts said Wednesday.

In the hours after martial law was declared, the Korean won fell to its lowest level against the US dollar in three years, while Korea-related ETFs and major stocks experienced sharp fluctuations.

"The incident has wrapped up overnight and is expected to have minimal impact on the real economy for now. But the political fallout remains uncertain, and the increased uncertainty is expected to shake the financial and foreign exchange markets for the next week or two, possibly extending to a month," Yang Jun-sok, an economics professor at the Catholic University of Korea said Wednesday, hours after martial law was lifted.

"Market volatility and turbulence in the industry could be prolonged when political disputes escalate and calls for Yoon's resignation or impeachment continue."

The martial law fiasco ended in 157 tense minutes, but the political landscape remains turbulent. The opposition parties are moving to proceed with an immediate impeachment of Yoon, calling him "the mastermind of a treasonous act of state mismanagement."

The country's largest labor union, the Korean Confederation of Trade Unions on Wednesday launched an indefinite strike, while several mass protests are expected to be staged to oust the president.

"Korea's economy heavily relies on exports, and I am worried the martial law incident and the following political turbulence could damage the country's reputation as a reliable partner," a chip industry official said.

"(The political incident) amplifies risks for companies at a time when public-private collaboration is crucial to reduce uncertainties surrounding US president-elect Donald Trump's second term."

Samsung Electronics and SK hynix, the world's top two memory chip makers, were operating their manufacturing facilities as usual on Wednesday. But the labor unions' indefinite general strikes and further political disturbances could impact the production of the Korean chip giants if subcontractors join the strikes, Lee Jong-hwan, a system semiconductor engineering professor at Sangmyung University, said.

"Other industries may face similar challenges, but the chip supply chain operates like an ecosystem, tightly interconnected and therefore extremely sensitive to external disruptions," Lee said, explaining how the failure of just a few companies destabilizes the global supply chain.

"If the political turmoil persists, it could erode national credibility and cause anxiety among foreign customers and investors," Lee added.

The global trading market also showed signs of disruption, with volatility impacting the stocks of major players as the martial law crisis unfolded. Nvidia, which relies on SK hynix for the cutting-edge High Bandwidth Memory chips used to enhance the performance of its expensive AI graphic processing units, saw its shares waver between gains and losses before closing at $138.63, up 0.27 percent compared to the previous day.

With the National Assembly preoccupied by the martial law issue, many pending bills aimed at supporting the domestic chip industry and other sectors are likely to be stalled, experts said.

“Assuming the border remains peaceful and beyond the inevitable short-term shock to financial markets, a period of political instability lies ahead in South Korea that will dent confidence in the economy,” Capital Economics Chief Asia economist Mark Williams wrote in a note to clients.




By Jo He-rim (herim@heraldcorp.com)

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