South Korea’s Economy Contracts Amid Political Turmoil, Uncertainty Over US Tariffs

By Staff, Agencies

South Korea’s economy shrank in the first quarter of the year, surprising analysts and signaling the toll of both internal political upheaval and growing global trade tensions, particularly those linked to US tariff threats.

The Bank of Korea announced Thursday that the country’s gross domestic product [GDP] declined by 0.2% compared to the previous quarter, and dropped 0.1% year-over-year. This marks a deviation from the central bank’s earlier forecast, which had projected 0.2% growth for the quarter.

The contraction comes as South Korea continues to reel from the political crisis set off by former President Yoon Suk Yeol’s controversial imposition of martial law in December. His impeachment and recent removal by the Constitutional Court have further polarized the nation and undermined consumer confidence.

With the presidency now vacant, the country is awaiting a snap election scheduled for June 3, where liberal opposition leader Lee Jae-myung is widely expected to win. Until then, the leadership vacuum continues to add uncertainty to the country’s economic outlook.

Adding to the strain is the unpredictability surrounding US President Donald Trump’s trade policies. His threat of 25% "reciprocal" tariffs—announced on April 2 but delayed for 90 days—has unsettled South Korea’s export-driven economy. Tariffs already imposed on steel and automobile imports from South Korea have further complicated matters for two of the country’s most vital industries.

The combination of domestic political instability and uncertainty over US trade actions is casting a shadow over South Korea’s near-term economic prospects, as global investors and local businesses alike await more clarity.