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South Korean and US politics impact Korean products’ prices

Hyundai new US taxes new Korean government - Retail in Asia
The proposed U.S. border tax could add $2,500 to this new Hyundai Genesis rolling off a South Korean assembly line.

Now that South Koreans have wrapped up their impressive tutorial in how to run a democracy – free press exposes corrupt president, people peacefully protest president, legislature legally impeaches president, voters elect new president – most observers are rightfully wondering what new South Korean President Moon Jae-in will do about his nuclear-armed neighbor to the north.

That’s an understandable concern, and one with existential implications, but Americans are more likely to be hit with a more prosaic question: Are they prepared to pay more for their Hyundai and Kia cars, their Samsung smartphones and their LG TVs?

Political circumstances and new presidents in South Korea and the U.S. are combining to create perilous times for Korean companies, both domestically and abroad, that will fundamentally change the way they do business and doubtless increase the price of their products.

SEE ALSO: China’s South Korea travel ban: what you need to know

If you were to listen to people outside of South Korea, you’d think the No. 1 issue on voters’ minds in the May 9 presidential election was North Korea. That was not the case. The top issue was the economy.

Despite its status as the world’s 12th-largest economy, South Korea has stalled. Much like China, the days of double-digit growth – when South Korea compressed 150 years of industrialization into 50, from 1961 to 2011 – are over. An economy over-dependent on exports from massive conglomerates has leveled off. Meanwhile, venture and other risk-based, tech-and-service-sector players have not sprung up. Having produced too many four-year college graduates, youth unemployment is much higher than the overall rate.

SEE ALSO: As leaders argue, South Korea finds China is no longer an easy sell

Much of the blame and resentment has been piled on the great family-controlled conglomerates, called chaebol, which have become global brands: Hyundai, Kia, Samsung and LG, among the largest. Despite having built modern Korea with the aid of winner-picking government policies and the fact they remain major hiring engines, the chaebols have targets on their backs. Critics blame their gargantuan size for stunting the growth of the country’s smaller businesses, like mighty oaks blocking the sun from smaller trees. Likewise, many Koreans blame the chaebols’ hereditary control of power, tightly held shares and opaque structure for concentrating too much economic power in the hands of too few. Samsung accounts for 20 percent of the value of the South Korean stock exchange.

Some investors are calling for chaebol reforms as a way to eliminate the “Korean discount” on their share price. Because of the chaebols’ unusual and closely held structure, the MSCI South Korea index trades at 9.7 times forward earnings versus 13.8 for the broader MSCI Asia-Pacific index. This ranks below Thailand and China.

(Source: Forbes)

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