[fn Editorial] Despite Tariff Resolution, Economic Outlook 'Cloudy', Increasing Government Role

The Bank of Korea Monetary Policy Committee froze the base rate at 2.5% on the 28th. The Bank of Korea raised this year's economic growth forecast from 0.8% to 0.9%, while maintaining next year's growth forecast at 1.6%. Bank of Korea Governor Lee Chang-yong said the upward revision of this year's forecast was due to "the second supplementary budget and improved economic sentiment leading to a greater-than-expected recovery in consumption."

Considering all of this, the economy as viewed by the Bank of Korea appears to be in a state of 'temporary strong consolidation'. While consumer sentiment has somewhat improved due to the supplementary budget and consumption coupon policy, the outlook is not optimistic. The U.S. tariff increase is having a significant impact. According to a report released by the Bank of Korea on this day, the U.S. tariff rate on Korea is 15%, ranking 18th among 50 countries. The Bank of Korea stated that U.S. tariff policy will reduce Korea's growth rate by 0.45%p this year and 0.60%p next year.

Although the Korea-U.S. summit ended relatively smoothly, the effects of U.S. tariffs will become apparent, slowing exports to the U.S. Exports to other countries are also expected to decrease due to U.S. tariff policy, according to the Bank of Korea's analysis. The future of Korea's economy, which is highly dependent on exports, is not expected to brighten easily.

In a situation where the external environment is not improving, the government should pursue a dual policy of boosting the economy in the short term while developing new growth engines such as artificial intelligence (AI) through advanced technology development to raise potential growth rates in the medium to long term.

If the government focuses solely on short-term policies like consumption coupons to achieve results during its term, the Korean economy will inevitably remain stagnant and become a low-growth country in the decades to come.

Particularly noteworthy is Governor Lee's remark that "our country's potential growth rate has fallen below 2%." The Organization for Economic Cooperation and Development (OECD) also recently estimated Korea's potential growth rate for this year at 1.9%, indicating that this figure has already been reached.

The Lee Jae-myung administration is also well aware of this reality. The goal of focusing on advanced technology development, including AI, and raising the potential growth rate to 3% has been set for this reason. The problem is whether these declarations will end as mere declarations. While it is good to invest a large budget in AI development, achieving the goal of becoming one of the top three AI countries requires exceptional strategy and execution. To raise the potential growth rate, policies must be implemented to increase the birth rate and, if necessary, boldly import foreign labor to prevent a decline in the economically active population.

The U.S. tariff policy will not simply end with a decrease in exports. To fulfill the promise of investment in the U.S., domestic investment will shrink, and the construction of factories in the U.S. will accelerate the hollowing out of domestic manufacturing. Employment and jobs will inevitably worsen, and increased overseas production may exacerbate labor-management conflicts.

Moreover, the massive offensive of Chinese manufacturing is gradually extending not only to petrochemicals but also to the automotive and electronics industries. It is just the beginning. The Korean economy is at a very critical juncture, to the extent that it can be called a crisis. The government has many tasks to solve, and the difficulty is high. It is by no means a leisurely time to grant greater authority to unions through frequent strikes and the Yellow Envelope Act.