Coupang dispute fuels new U.S. tariff pressure on South Korea

South Korea has announced a historic budget of US$600 billion for 2027, marking a 12.8% increase from the previous year and the largest year-on-year rise in the nation's history. The substantial spending plan, approved by President Lee Jae Myung's administration, aims to bolster the country's technological prowess in the global AI race.

The increase in government expenditure is primarily driven by a windfall from the flourishing semiconductor industry, with Samsung Electronics and SK Hynix generating unprecedented profits due to the soaring demand for high-bandwidth memory in AI applications. This revenue is expected to raise total tax revenue by 40.7%, with corporate tax receipts projected to more than double.

The influx of funds will help reduce South Korea's debt-to-GDP ratio by 3.3 percentage points, bringing it down to 48.3% from the current 51.6%. In response to the budget proposal, Budget Minister Park Hong-keun emphasized the government's commitment to preemptively and expansively deploying fiscal resources, leveraging the increased tax revenues for the next two years.

The government has earmarked 2.6 trillion won for a special semiconductor budget, 3.4 trillion won for a nuclear-powered submarine program, and other strategic weapons. To balance the increased spending, the government plans to use excess tax revenue to establish the Future Response Fund, which will invest 45.4 trillion won in initiatives such as youth welfare, future growth engines, and specialized education programs.

The budget will also focus on strengthening the nation's chip manufacturing infrastructure, with 21.3 trillion won allocated to industrial water systems, power grids, and logistics networks. Additionally, the government aims to reduce net bond issuance by 13.1 trillion won and complete the repayment of public funds from the 1997-98 financial crisis.