🚨 New Government Economic Policy Launch: Recovery Through Extra Budget and Trade Negotiations

Today Korean Economic News | 2025.06.04

📌 New Government Starts Economic Recovery with Extra Budget and Trade Negotiations

💬 With the new government's launch, economic experts have proposed extra budget and strengthened trade negotiation capabilities as top priorities to respond to domestic demand decline and US tariff pressure. The extra budget will focus on supporting small businesses, low-income groups, and companies suffering from US tariffs. In trade negotiations, they emphasized the need to ease non-tariff barriers and carefully respond to US tariff demands. Especially with Korea's economy facing complex crises including near-zero growth rates and household debt burdens, the government's active role has emerged as a key factor for economic recovery.

1️⃣ Easy Understanding

The new government has started preparing serious measures to save Korea's economy. Currently, our economy faces many difficult problems that need active government intervention.

Let's first look at Korea's economic situation. This year's economic growth rate is expected to be less than 1%, which means we're basically in a recession. People are reducing spending because of high household debt, and exports have become difficult because the US is imposing high tariffs on our products. Simply put, we're facing double trouble - neither domestic consumption nor exports are working well.

In this situation, the new government's solutions are "extra budget" and "strengthened trade negotiation capabilities."

What is an extra budget? The government plans a year's budget at the beginning of each year, but when economic situations change rapidly, they spend additional money to revive the economy. It's similar to a person taking out emergency savings when facing sudden big difficulties.

This extra budget will focus on three groups. First is small business owners. People who run cafes, restaurants, and small shops are facing great difficulties due to decreased customers, so the government will provide funding support or tax benefits. Second is low-income groups. Support will be expanded for people whose lives have become difficult because prices are rising but incomes are not increasing. Third is companies suffering from US tariffs. The government plans to provide support for exploring new markets or management stability funds for companies whose exports have decreased.

What is strengthened trade negotiation capabilities? Simply put, it means building the ability to create favorable conditions for our country when negotiating trade with other countries. Especially since the US is imposing 25% high tariffs on our products, negotiations are needed to reduce these or solve them in other ways.

The government plans to use two strategies. One is "easing non-tariff barriers." This means removing barriers that make it difficult to export our products through complicated certification procedures or technical regulations besides tariffs. The other is to carefully respond to US tariff demands without unconditional acceptance. This means finding win-win solutions by proposing conditions that also help us.

In the end, the new government's economic policy is a two-track strategy: 'stimulate the economy by spending money domestically and improve export conditions externally.'

2️⃣ Economic Terms

📕 Extra Budget

Extra budget means additional budget that the government creates beyond the budget made at the beginning of the year.

• It is created to respond to economic recession, natural disasters, or sudden economic crises.
• It requires approval from the National Assembly and is usually aimed at economic stimulus.
• Korea has experience creating the largest extra budget in history during COVID-19.

📕 Trade Negotiations

Trade negotiations mean diplomatic negotiations between countries to determine trade and investment conditions.

• Main negotiation targets include tariff rates, import quotas, technical regulations, and investment protection.
• FTA (Free Trade Agreement) signing and WTO dispute resolution are typical examples.
• The stronger the negotiation power, the more favorable conditions a country can obtain.

📕 Non-tariff Barriers

Non-tariff barriers mean measures that restrict trade through methods other than tariffs.

• They include strict quality certification, complex customs procedures, and technical regulations.
• On the surface, they claim safety or environmental protection, but are actually used as protectionist trade measures.
• They are harder to identify and more difficult to respond to than tariffs.

📕 Domestic Demand

Domestic demand refers to all consumption and investment activities within the country.

• Main components of domestic demand are household consumption, corporate investment, and government spending.
• Strong domestic demand can serve as a buffer against external economic shocks.
• Korea has high export dependency, making domestic demand strengthening an important task.

3️⃣ Analysis and Economic Outlook

✅ Economic Effects and Limitations of Extra Budget

• Let's analyze the impact of extra budget on the economy and conditions for success.

  • First, the economic stimulus effect of extra budget depends on spending targets and size. Currently, Korea's economy has household debt reaching 104% of GDP, greatly reducing consumption capacity. For extra budget to be effective in this situation, it must focus on groups that can actually increase consumption. This is why supporting small businesses and low-income groups is important. These groups connect most of the money they receive to consumption, creating large ripple effects throughout the economy. On the other hand, support for high-income groups is likely to lead to savings, limiting immediate economic stimulus effects. In economics, this is called "marginal propensity to consume" - the lower the income, the more likely people are to use most additional income for consumption.

  • Second, support for companies affected by US tariffs is key to export competitiveness recovery. Currently, the US is imposing 25% tariffs on Korean products, affecting major export items like automobiles, steel, and semiconductors. In this situation, government support should go beyond simple loss compensation to become a means of securing new competitiveness. For example, it's important to help companies offset tariff burdens through new market development support, technology innovation investment, and productivity improvement programs. It's also necessary to support entry into alternative markets like China, India, and ASEAN to reduce dependence on the US market. If this support succeeds, it can not only overcome short-term difficulties but also establish a foundation for long-term export diversification.

  • Third, the impact of extra budget on fiscal soundness must be carefully considered. Korea's national debt ratio is currently around 50%, lower than the OECD average, but is expected to face increasing pressure due to rapid aging. Therefore, the size of extra budget and financing methods must be carefully decided. Reckless fiscal expansion could burden future generations. For effective extra budget, clear performance indicators must be set, and a system to evaluate effects after a certain period and adjust when necessary is needed. Also, policy design that leads to structural improvement rather than just temporary support is important.

• The success of extra budget depends on accurate targeting and efficient implementation. It should become strategic investment for economic structural improvement, not just simple money spending, to achieve real economic recovery effects.

✅ Need for Strengthened Trade Negotiation Capabilities and Strategies

• Let's examine the changing trade environment Korea faces and response strategies.

  • First, new trade strategies are needed due to strengthened US protectionism. Korea faces 25% high tariffs due to the Trump administration's "America First" policy. This is a completely different environment from past multilateral trade order. In situations where existing WTO systems or FTAs are difficult to solve, Korea must develop new negotiation strategies. The important thing is finding mutually beneficial solutions without unconditionally surrendering to US demands. For example, Korea could demand tariff reductions in exchange for increasing imports of US products, or propose measures that help both countries through expanded technology cooperation. This creative approach is the core of negotiation power.

  • Second, easing non-tariff barriers is the key to long-term export increase. More difficult than tariffs are various technical regulations and certification procedures. For example, Korean cars must pass complex safety standards to be exported to the US, and food must receive FDA approval. If these procedures are unreasonably strict or discriminatorily applied, they become barriers that effectively block exports. The government must accurately identify the reality of such non-tariff barriers and demand improvements according to international standards. At the same time, Korea must also provide reasonable and transparent regulatory environments to foreign companies, maintaining reciprocity principles. If these efforts succeed, sustainable export increase effects can be achieved even after tariff barriers are resolved.

  • Third, strengthening negotiation power through multilateral cooperation and regional solidarity is necessary. Korea alone cannot conduct equal negotiations with economic powers like the US. Therefore, it's effective to cooperate jointly with countries in similar situations like Japan, EU, and Canada. Also, strengthening Korea's leadership within Asia to increase intra-regional trade ratios is an important strategy. Active participation in multilateral trade agreements like RCEP (Regional Comprehensive Economic Partnership) and CPTPP (Comprehensive and Progressive Trans-Pacific Partnership) is needed to reduce dependence on the US market. If this diversification strategy succeeds, a stable export foundation that doesn't waver under pressure from specific countries can be built.

• Trade negotiations are not simply diplomatic issues but core tasks that determine the nation's economic future. Professional expertise-based thorough preparation and long-term vision are prerequisites for success.

✅ Conditions for Maximizing Policy Effects

• Let's analyze key elements for the new government's economic policies to succeed.

  • First, creating synergy effects between policies is important. Extra budget and trade negotiations should not be separate policies but connected comprehensive strategies. For example, a virtuous cycle structure should be created where extra budget supports corporate technology development, and the resulting technology gives advantages in trade negotiations. Also, domestic demand stimulation and export increase must happen simultaneously for true economic recovery. Focusing only on domestic demand could lead to increased imports, while focusing only on exports could weaken the domestic base. The government must secure policy consistency and efficiency through cooperation between departments.

  • Second, inducing voluntary participation from the private sector is key. Government support is only a catalyst role - the actual subjects of economic activity are companies and individuals. Therefore, government support should serve as a catalyst to induce private investment and consumption. For example, when the government provides funding to small businesses, it should not just give money but also provide management consulting, digital transformation support, and market development assistance to lead to fundamental competitiveness improvement. Also, appropriate combinations of incentives like deregulation, tax benefits, and financial support should be provided so companies voluntarily engage in innovation and investment.

  • Third, securing public trust and cooperation is a prerequisite for policy success. No matter how good the content, economic policies have limited effects if people don't trust and follow them. Especially in difficult economic situations like now, distrust in policies can be great. Therefore, the government must clearly explain the necessity and expected effects of policies to the public and show transparent implementation processes. Also, it should explain in advance that policy effects take time to appear, avoiding hasty judgments. Most importantly, policy benefits should be distributed evenly throughout society rather than concentrated on specific groups.

• Ultimately, the new government's economic policies can achieve real results when based on sophisticated design, efficient implementation, and social consensus.

4️⃣ In Conclusion

The new government's economic policy direction can be evaluated as a realistic and comprehensive response to the complex crisis Korea's economy currently faces. The two-track strategy of extra budget and strengthened trade negotiation capabilities is a balanced approach pursuing both domestic demand stimulation and export recovery simultaneously.

Most importantly, policy priorities are clear. Focused support for small businesses and low-income groups has significance not only in economic effects but also in social equity dimensions. These groups must recover their economic activity foundation for the entire economy's virtuous cycle structure to be possible.

Strengthened trade negotiation capabilities is also a timely strategy. In situations where US protectionism is strengthening, it shows the will to find breakthroughs through active and creative negotiations rather than passive responses. Especially focusing on easing non-tariff barriers is a very important approach from a long-term perspective.

However, several conditions must be met for success. First, policy consistency and sustainability must be maintained. It's important to maintain medium to long-term goals without being swayed by political changes or short-term performance pressure. Second, resources must be efficiently allocated within ranges that don't harm fiscal soundness. Third, voluntary participation from the private sector must be maximally induced to break away from government-dependent growth.

Also, we hope this policy leads to structural improvement of Korea's economy beyond simple crisis response. Economic structures resistant to external shocks must be built through export market diversification, domestic demand base strengthening, and innovation capability expansion.

Economic recovery doesn't happen overnight. However, if the new government's proposed policy direction is properly implemented, we can overcome current difficulties and establish foundations for healthier and more sustainable economic growth. We hope the government, private sector, and all citizens gather wisdom together to turn this challenge into an opportunity.