Tariffs and regulation push Korean firms to brink

With only a week remaining before the United States imposes a 25 percent retaliatory tariff, anxiety is rising among Korean businesses. The collapse of planned 2+2 trade talks on Friday has further clouded prospects for negotiation. U.S. President Donald Trump has publicly urged South Korea to boost investment in the United States, suggesting that tariffs could be lowered if Seoul follows Japan’s example and “pays up.”

At home, companies are grappling with a growing wave of regulatory tightening. New proposals, including the strengthened Commercial Act and a revised Yellow Envelope Act, are compounding operational pressure. With external demands from the United States and increasing domestic constraints, Korean businesses are now burdened on both fronts, raising concerns that they may be pushed to the brink.

The tariff threat is already weighing on earnings. Hyundai Motor and Kia reported record-breaking sales and revenue in the second quarter, but more than 1.6 trillion won in operating profit was erased by tariffs. If these pressures intensify in the second half of the year, export-driven industries could suffer even steeper losses. While expanding local production or investing in U.S. operations may help offset the damage, companies already grappling with shrinking profits may lack the financial flexibility to act.

Their investment capacity is further constrained by domestic law. A revised commercial law, which broadens fiduciary duties to include shareholders, took effect on July 15. Additional proposed measures are threatening to reduce corporate agility. Traditional funding methods such as listing subsidiaries and issuing rights offerings have stalled due to opposition from minority shareholders. Rights offerings, once a key method of raising over 20 trillion won annually, are now widely criticized for diluting shareholder value.

Meanwhile, the proposed Yellow Envelope Act revision poses another risk. If the definition of labor disputes is broadened, strikes could be permitted over corporate decisions involving investment, factory relocations, or restructuring. Companies involved in large-scale U.S. investments in sectors such as semiconductors, energy, and automotive manufacturing could face lawsuits or labor unrest, even if their actions align with long-term strategic goals. Businesses are increasingly cornered: take bold action and risk legal consequences, or hold back and risk falling behind.

President Lee Jae-myung met with Samsung Electronics Chairman Lee Jae-yong on Thursday and is holding a series of meetings with other corporate leaders to discuss countermeasures. At this critical juncture, the government must prioritize supporting business growth and eliminating unnecessary regulation, as pledged after the election. The contradiction of asking companies to invest while simultaneously exposing them to legal and regulatory risk must be resolved without delay.