A cloud of uncertainty hangs over South Korea, with the country still reeling from President Yoon Suk Yeol's short-lived declaration of martial law in early December.

The political crisis has already hit the nation's economy. The stock market appears to be unstable, its currency — the South Korean won — continues to lose value and foreign investors are shifting to alternative markets.

Most of these problems stem from a political power struggle at the top.  Yoon is refusing to cooperate with the investigation into his actions and has defied orders for his arrest.

Meanwhile, the Constitutional Court is deliberating on whether he can be impeached and the opposition Democratic Party is demanding an immediate general election.

But business in South Korea are also unsettled by Donald Trump returning to the White House later this month.

Ahead of the US election,Trump referred to South Korea as a "money machine" and hinted he would ask Seoul to pay billions of dollars more to station US troops.

The president-elect has also pledged wide-reaching international tariffs to push his "America first" agenda.

Business confidence drops to pandemic-era lows

"To put it mildly, a lot of the political unrest that we have seen over the last month has yet to be resolved," said Kim Sang-woo, a former politician with the left-leaning South Korean Congress for New Politics and a member of the board of the Kim Dae-jung Peace Foundation.

"The won was already weak against the dollar, but that has become worse due to the unrest and I fear there is no clear understanding of who is governing the country at the moment," he told DW.

"That is very unsettling for companies, which are afraid to make plans for the coming year," he added.

The crisis could end with Yoon avoiding impeachment and returning to the presidency, although this would likely trigger outrage amid large sections of the public. Another outcome could be Yoon's rivals from the Democratic Party pushing through a new election, which they would likely win.

Right now, however, the country is adrift.

A recent poll by the Bank of Korea showed that business sentiment has sunk to its lowest level in four years.

The monthly Composite Business Sentiment Index also tumbled 4.5 points from November's figure, hitting the lowest level since September 2020, when the economy was feeling the full impact of the COVID-19 pandemic.

A second report by the central bank predicted that economic growth in 2025 will be under 2%, due to weak export growth and reduced consumer spending, and could drop even further if global trade tensions worsen.

Stock exchange falls again

Shares on the Korea Composite Stock Price Index (KOSPI) on Monday recovered some of the ground they lost in the weeks after Yoon's announcement, despite the market jitters that analysts have contributed to the political uncertainty. 

The won continued its recent downtrend against the dollar, leaving it trading at close to 16-year lows last seen in the aftermath of the global financial crisis.

The government also confirmed on December 30 that foreign investors have sold more than 17 trillion won in Korea treasury bonds since Yoon declared martial law, signaling a loss of confidence in the nation's financial stability.

And the latest economic storm comes after months of weak corporate earnings — last week, the government also announced that tax revenues fell by 8.5 trillion won ($5.9 billion, €5.6 billion) in the first 11 months of 2024, in comparison with 2023.

What will US-China row do to South Korea?

Another danger for countless South Korean companies is the fact they procure components from Chinese firms. 

With Trump returning and the US-China trade war threatening to escalate, those business could be forced to pay even greater penalties as the US tries to muscle China out of production chains.

"There is also a lot of uncertainty about the upcoming administration in Washington, what Trump will do on tariffs and the pressure that he may put on Seoul to renegotiate the South Korea-US free trade agreement," said Mason Richey, a professor of politics and international relations at Hankuk University of Foreign Studies in Seoul.

"It is also clear that the actions that he takes towards China will also have a serious knock-on effect here, such as for manufacturers of electric vehicle batteries," he told DW.

What happens if Yoon's rivals take power?

And while businesses crave the stability of a settled government, many are unenthusiastic about South Korea's Democratic Party returning to power, said Richey.

"Assuming that Yoon is impeached and removed from office, there would have to be an election within 60 days and it appears very likely that the Democratic Party would win," he said.

"But they are far more inclined to tax and impose regulations on industry than the Yoon administration has been."

Richey cites the example of the civil nuclear industry as a sector that would be affected by the power shift.

Under the left-leaning Moon Jae-in government immediately before Yoon, nuclear energy was being phased out entirely. Yoon reversed that policy and made it a key export sector.

If the Democrats once again take office, Seoul could perform yet another U-turn and abandon nuclear energy — the sort of policy reversal that makes planning effectively impossible, Richey said.

Edited by: Darko Janjevic