🚨 Acting President Han Duck-soo Focuses on Election, Tariffs, and Supplementary Budget
Today Korean Economic News | 2025.04.05
📌 Acting President Han Duck-soo Focuses on Election, Tariffs, and Supplementary Budget
💬 Following the impeachment of former President Yoon Suk-yeol, Prime Minister Han Duck-soo has become the acting president and will lead the nation for 60 days. He is focusing on the fair management of the early presidential election, tariff negotiations with the United States, forest fire recovery, and drafting a supplementary budget to stimulate domestic economic recovery.
1️⃣ Easy Understanding
Let me explain the major economic issues facing Acting President Han Duck-soo and their significance.
After the Constitutional Court's decision to impeach former President Yoon Suk-yeol, Prime Minister Han Duck-soo was appointed as acting president to lead the country for 60 days. In an acting president system, the focus is typically on minimizing administrative gaps and stably managing current issues rather than pursuing new policies.
The first economic issue facing Acting President Han is the U.S. tariff imposition. President Trump recently decided to impose a 25% tariff on Korean automobiles and semiconductors, which could significantly impact the Korean economy. The acting president has convened an emergency response meeting to discuss countermeasures and is seeking to negotiate tariff reductions with the United States.
The second important issue is drafting a supplementary budget. The government had already been preparing a supplementary budget of 10 trillion won, but is now considering expanding it to address Gangwon Province forest fire recovery and domestic economic stimulation. The supplementary budget must be reviewed by the National Assembly, and reaching agreement between ruling and opposition parties during the early presidential election period will be crucial.
The third issue is the fair management of the early presidential election. The early election, which must be held within 60 days of the president's impeachment, raises political uncertainty and may divert attention from economic policies. The acting president is focusing on minimizing administrative gaps during the election process and preventing economic disruption.
Lastly, long-term inflation concerns and real estate market stabilization are also important tasks. The Bank of Korea recently froze the benchmark interest rate, but with continuing inflationary pressures, the acting president's administration is paying close attention to financial market stability.
As we can see, Acting President Han Duck-soo will handle complex economic issues during his short term. It is important to stably manage tariff responses, supplementary budget drafting, and election administration. Maintaining economic stability amid political uncertainty will be the top priority.
2️⃣ Economic Terms
📕 Acting President
An acting president is a position that temporarily assumes presidential authority when a president cannot perform duties due to incidents like impeachment.
- According to Article 71 of the Constitution, the Prime Minister acts as president.
- The acting president can exercise all presidential powers, but traditionally shows restraint in important matters such as appointments or constitutional amendment proposals.
📕 Supplementary Budget
A supplementary budget is an additional budget drafted by the government during the fiscal year, beyond the already confirmed budget.
- It is drafted in response to economic downturns, natural disasters, or national crises.
- It is finalized after National Assembly review and approval, and serves as a tool to enhance fiscal policy flexibility.
📕 Tariff
A tariff is a tax imposed on imported goods crossing national borders.
- It increases the price of imported goods, protecting domestic industries and increasing government revenue.
- Free trade agreements (FTAs) lower or eliminate tariffs between countries to promote trade.
📕 Economic Stimulus
Economic stimulus refers to policy measures taken by governments to stimulate economic activity and promote growth.
- Fiscal policy (expanding government spending, tax cuts) and monetary policy (lowering interest rates, providing liquidity) are the main instruments.
- Balance between short-term economic recovery and long-term growth potential enhancement is important.
3️⃣ Principles and Economic Outlook
💡 Limitations and Challenges of Economic Policy in an Acting President System
Let's examine the limitations and challenges of economic policy in an acting president system.
First, the acting president system has structural limitations in policy decision-making and implementation. According to Article 71 of the Constitution, the Prime Minister can act as president, but traditionally shows restraint in core policy decisions or exercising appointment powers. Especially, the short 60-day term is insufficient to establish and implement mid to long-term policy plans. These structural constraints make it difficult to respond strongly and consistently to economic issues. For example, rather than strategic negotiations or industrial restructuring to respond to U.S. tariffs, the focus is likely to be on short-term measures like emergency support. Also, influence in diplomatic venues like international economic forums or summit meetings will inevitably be limited. Within these constraints, Acting President Han must maintain policy continuity through cooperation with the core economic team and minimize unnecessary confusion.
Second, the impact of political uncertainty on economic stability must be managed. Political uncertainty due to presidential impeachment and the early election could lead to increased financial market volatility, dampened corporate investment, and deteriorating consumer sentiment. Foreign investors are particularly sensitive to political risks, potentially raising the risk premium on Korean assets. Acting President Han needs to increase the predictability and transparency of economic policies and take preemptive measures for financial market stability to minimize this uncertainty. For example, strengthening market monitoring by the Financial Supervisory Service and the Bank of Korea, and preparing to implement foreign exchange market stabilization measures if necessary. Additionally, communication with international credit rating agencies should be strengthened to emphasize that Korea's economic fundamentals remain solid and that the political situation will not affect credit ratings.
Third, populist economic policy pressures during the early election process must be managed. During election periods, policy proposals that consider political popularity over economic rationality tend to increase. Especially, excessive fiscal spending for economic stimulus, tax cuts for specific groups, and real estate regulation relaxation may proliferate. These populist policies might gain short-term popularity but could cause long-term side effects like deteriorating fiscal soundness, real estate bubbles, and economic structural distortions. In this situation, Acting President Han needs to emphasize economic rationality and long-term stability, making policy decisions based on objective economic data and expert opinions. Particularly in the supplementary budget drafting process, maintaining balance between fiscal soundness and economic stimulus, and focusing on efficient and targeted support rather than populist budget allocations are important.
Fourth, rapid responses to global economic environment changes are necessary. External challenges like U.S. tariff impositions, global supply chain reorganization, and inflationary pressures will continue regardless of the acting president system. Particularly, the Trump administration's tariff imposition could directly impact Korean export companies and have cascading effects on industrial production, employment, and economic growth. Acting President Han must quickly establish industry-specific impact analyses and response strategies through close cooperation with relevant ministries like the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance. In the short term, support measures for affected companies should be devised, and diplomatic efforts for tariff mitigation should be pursued through various channels like WTO complaints and bilateral negotiations. Although global supply chain reorganization and industrial restructuring are long-term tasks, it's important to at least present important directions to provide a foundation for the next administration.
Acting President Han must maintain economic stability and respond to core issues despite structural limitations. Although his term is short and authority limited, it's important to ensure economic policy continuity and minimize unnecessary confusion to provide a foundation for the next administration to stably continue economic policies. Particularly, a balanced approach that focuses on urgent issues like tariffs, supplementary budget drafting, and financial market stability while not compromising long-term economic soundness is needed.
💡 Response Strategies to U.S. Tariffs and Economic Impact
Let's analyze Korea's response strategies to U.S. tariff impositions and their economic impact.
First, the impact of the U.S. 25% tariff on the Korean economy is substantial. The U.S. is Korea's second-largest export market, and automobiles and semiconductors are core export items. According to the Korea Institute for Industrial Economics & Trade analysis, a 25% tariff could reduce Korea's exports to the U.S. by up to 23%, which could lower the GDP growth rate by 0.5-0.7 percentage points. For the automobile industry, considering the low operating profit margins (3-5%), it's impossible for companies to absorb the entire 25% tariff, making price increases inevitable and likely leading to reduced export volumes. The semiconductor industry is also expected to be affected, especially in memory sectors with high dependence on the U.S. market. Export reductions due to tariffs will also negatively impact employment and investment, with significant ripple effects on related industries. In this situation, the acting president system's response capabilities are inevitably limited, but efforts to mitigate short-term shocks are necessary.
Second, diverse response strategies must be quickly established and implemented. Acting President Han has already convened an emergency economic ministers' meeting to discuss comprehensive countermeasures. Response strategies are expected to proceed in three main directions. First, legal responses through WTO complaints. If the U.S. tariff imposition is deemed to violate WTO regulations, filing a complaint can secure international legal justification. However, as WTO rulings take considerable time, this has limitations as a short-term solution. Second, seeking solutions through bilateral negotiations. Package deals reflecting U.S. interests like voluntary export restraints, expanded U.S. investments, and increased purchases of U.S. products can be proposed. Particularly, a negotiation strategy utilizing the connection between economics and security while emphasizing the importance of the ROK-U.S. security alliance is needed. Third, preparing domestic company support measures. Financial support, tax benefits, and R&D subsidies should be considered to partially ease the burden on companies due to tariffs and support export market diversification.
Third, customized responses considering industry-specific characteristics are necessary. Automobiles and semiconductors have different industry characteristics and response possibilities, requiring differentiated approaches. For the automobile industry, Hyundai and Kia have production facilities in the U.S., allowing them to offset some impacts through expanded local production. However, local production capacity is limited, and a significant portion of parts are imported from Korea, making complete substitution difficult. The government can consider expanding financial and tax support for automobile companies planning additional U.S. investments and supporting the accompanying advancement of parts suppliers. The semiconductor industry, due to product characteristics, has difficulty finding substitutes and has complexly intertwined global supply chains, making it possible that some tariffs will be passed on to U.S. companies and consumers. The government needs to support semiconductor companies' technological competitiveness enhancement and focus negotiations on expanding tariff exclusion items (e.g., advanced system semiconductors).
Fourth, establishing mid to long-term industrial competitiveness enhancement strategies is necessary. Although it's difficult to fully pursue mid to long-term strategies in an acting president system, it's necessary to at least present important directions and begin foundational work. Methods to secure fundamental competitiveness that can overcome tariff barriers through export market diversification, product premiumization, and technological innovation should be sought. Particularly, accelerating advancement into emerging markets like India, Southeast Asia, and Latin America, and lowering dependence on specific markets or items through export item diversification is important. Also, it's necessary to prepare a policy framework that proactively responds to global supply chain reorganization and promotes industrial structure advancement using the tariff dispute as an opportunity. Acting President Han should focus on setting the basic direction for these mid to long-term strategies and preparing a foundation that the next administration can continue.
U.S. tariff impositions give short-term shocks to the Korean economy, but in the long term, they can be an opportunity to adapt to changes in the global trade environment and advance industrial structure. The acting president system will mainly focus on mitigating short-term shocks and seeking solutions through negotiations, but the direction from a mid to long-term perspective must also be considered. Particularly, it's important to prepare foundations for industrial competitiveness enhancement and market diversification while minimizing tariff impacts through multilateral approaches like WTO complaints, bilateral negotiations, and company support.
💡 Efficient Drafting and Implementation of Supplementary Budget
Let's explore efficient drafting and implementation methods for the supplementary budget in the current situation.
First, the purpose and priorities of the supplementary budget must be clearly set. The 10 trillion won supplementary budget currently being pursued was originally intended to respond to economic slowdown concerns and inject vitality into the economy. However, new fiscal demands like Gangwon Province forest fire recovery have emerged, and the need to support export companies due to U.S. tariff impositions has also increased. In this situation, it's important to clearly prioritize how to allocate limited resources. Acting President Han must reestablish the supplementary budget's purpose around three axes - disaster recovery, affected company support, and domestic economy stimulation - through consultation with economy-related ministries, and determine appropriate resource allocation for each area. Particularly, forest fire damage has high urgency requiring prompt support, export company support must be preemptively provided before tariff impacts fully materialize, and domestic economy stimulation must focus on areas where effects can be maximized.
Second, a National Assembly passage strategy considering the political environment is needed. In the face of an early presidential election, political confrontation between ruling and opposition parties is likely to intensify, affecting supplementary budget deliberations. The ruling party may focus on economic stimulus to boost approval ratings, while the opposition party may focus on criticizing the government to increase their chances of taking power, creating the possibility of politicizing the supplementary budget. Acting President Han must gather a wide range of opinions including from the opposition party considering this political environment, and emphasize the greater cause of national economy and disaster victim support over partisan interests. Particularly, consensus should be formed around less politically controversial issues like disaster recovery, and a flexible approach that actively accepts National Assembly opinions on detailed projects is needed. Also, transparency in the supplementary budget drafting process should be increased, and its necessity should be convincingly presented based on objective economic data and expert opinions.
Third, balance between fiscal soundness and economic stimulus effects must be considered. Korea's national debt ratio has rapidly increased since COVID-19, exceeding 50% of GDP. In this situation, additional fiscal expansion could burden long-term fiscal soundness. Therefore, Acting President Han must carefully consider the balance between economic stimulus necessity and fiscal soundness when determining the supplementary budget size. It's desirable to design the supplementary budget to source funds through tax revenue increases or existing budget restructuring and minimize bond issuance. Also, it's important to invest in areas with high multiplier effects that can contribute to sustainable growth rather than short-term consumption stimulation. Particularly, forest fire damage recovery, export company competitiveness enhancement, and youth job creation can be priority areas considering both social necessity and economic effects.
Fourth, a rapid and efficient implementation system must be established. The supplementary budget's effect is greatly influenced by actual implementation speed. In the past, even after supplementary budgets passed the National Assembly, actual implementation was often delayed, reducing economic stimulus effects. Acting President Han needs to strengthen advance preparations to enable immediate implementation upon supplementary budget passage and establish a 'special management system' that monitors implementation status in real-time. Particularly, cooperation with local governments should be strengthened, and incentives to promote private sector participation should also be prepared. A goal to implement over 70% within three months of supplementary budget passage should be set, and ministerial implementation plans and responsibility systems for this should be clearly established. Also, the implementation status and performance of supplementary budget projects should be transparently disclosed to secure public trust and induce efficient fiscal operations.
Efficient drafting and implementation of the supplementary budget is an important policy tool for economic vitality enhancement and disaster damage recovery at this point. Acting President Han must focus on clearly defining the supplementary budget's purpose and priorities, preparing a National Assembly passage strategy considering the political environment, maintaining balance between fiscal soundness and economic stimulus effects, and establishing a rapid and efficient implementation system. Particularly, it's important to draw cooperation between ruling and opposition parties so that the supplementary budget can be used as a tool for national economic stability rather than a political issue, despite the limitations of the acting president system.
4️⃣ In Conclusion
Acting President Han Duck-soo will handle important economic issues during his short 60-day term following former President Yoon Suk-yeol's impeachment. Complex tasks like early election management, U.S. tariff imposition response, supplementary budget drafting, and forest fire damage recovery are piling up.
The acting president system inevitably has structural limitations in policy decision-making and implementation. However, even within these constraints, Acting President Han must perform the important role of maintaining economic stability and responding to core issues. Particularly, the U.S. 25% tariff imposition could significantly impact the Korean economy, requiring multilateral responses like WTO complaints, bilateral negotiations, and domestic company support.
The supplementary budget is an important policy tool for economic stimulus and disaster recovery. Even amid political uncertainty, it's important to clearly define the supplementary budget's purpose and priorities, draw ruling and opposition party cooperation for National Assembly passage, and establish a rapid and efficient implementation system.
Also, as populist economic policy pledges may proliferate during the early election process, Acting President Han must present a balanced perspective emphasizing economic rationality and long-term stability.
Although Acting President Han's role is short-term, its impact can be long-term. It's important to prepare a foundation for the next administration to stably continue economic policies by ensuring economic policy continuity and minimizing unnecessary confusion. Particularly, a balanced approach is needed that focuses on urgent issues like tariffs, supplementary budget drafting, and financial market stability while not compromising long-term economic soundness.