[The Editors' Verdict] "Can't Blame Trump Alone for the 'Hollowing Out of K-Manufacturing'"

Recently, a CEO of a venture company I met in private expressed concerns ahead of an upcoming business trip to the United States. This company is a defense industry firm producing key components for various satellites domestically, and it is negotiating supply deals with well-known U.S. big tech companies. His concern was about the U.S. client's demand to establish a local factory. Although there had been requests during negotiations to "build a factory in the U.S.," he had not paid much attention to them. Due to the nature of a venture company, financial resources and workforce supply issues make it difficult to operate multiple factories.

However, this year, the client's demands have intensified to the point of pressure. The worry about potentially losing a major client has inevitably grown. Since building a factory requires considering financing plans, it is not an easy decision to make.

He initially thought that the tariff bombs from the Donald Trump administration affected even venture companies, but the real reason was different. Even before the new administration took office, big tech companies had been demanding production within the U.S.

The decisive turning point when the client's proposal turned into pressure was the martial law incident triggered by former President Yoon Seok-yeol in December last year. When a sudden martial law situation occurred in Korea, a model student in Asian political economy, big tech companies, feeling supply chain instability, ordered production within the U.S. to ensure stable supply of parts. Since defense is related to national security, supply chain stability is essential. However, big tech companies do not see Korea, where political situations change rapidly, as a stable supply source, which is why they demand factory relocation. This venture company CEO said, "I never imagined that martial law would affect our business as well." When the new U.S. administration also threatened tariffs, he decided to proceed with building a local factory.

After the Trump administration took office, the biggest concern among domestic trade experts was the "hollowing out of domestic manufacturing." If domestic companies build factories in the U.S. to avoid the tariff bombs from President Trump, the domestic production base would inevitably shrink. When Hyundai Motor Group announced last month a $21 billion investment plan in the U.S. over the next four years (about 31 trillion KRW), these concerns grew even stronger.

However, seeing a defense venture company seriously considering moving to the U.S. makes it difficult to attribute the hollowing out of domestic manufacturing solely to the Trump administration's tariff bombs. Having experienced a sudden martial law and the fall of democracy, we have gained a reputation for "distrust" in the global supply chain. There are already many evaluations that it is difficult to do business here due to the revised Commercial Act and strong labor unions. Now, martial law has also been added as a factor accelerating the hollowing out of manufacturing.

Domestic defense has established itself as a major industry through successive overseas orders. According to the Korea International Trade Association, last year, the export volume of weapons by Korean defense companies exceeded $4.05 billion, easily surpassing 5 trillion KRW. In particular, the U.S. ranked as the third-largest country to which Korea sold weapons. If major companies in automobiles, semiconductors, batteries, and now defense choose local production in the U.S., exports will inevitably be adversely affected.

According to economic organizations, as of April last year, there were a total of 2,432 Korean business establishments in the U.S. This number will continue to increase due to internal and external variables. The Trump administration is attracting advanced manufacturing industries to its own country under the pretext of national security. The martial law incident remains painful as it provided an excuse to push our companies overseas rather than protect them.