Economic policy should look beyond the semiconductor boom

Cho Yoon-je

The author is a special appointment professor at the Graduate School of Economics at Yonsei University. 

Political leaders are ultimately judged not by how hard they work but by how effectively they respond to the challenges of their time and what legacy they leave behind. President Lee Jae Myung will be no exception. With nearly four years remaining in his term, he has demonstrated intellectual acuity, energy and close attention to both domestic governance and foreign affairs. Yet history will judge his presidency by the long-term political, economic and social legacy it leaves.

Korea, like many countries, is navigating profound changes in the global order driven by the AI-powered digital revolution and intensifying geopolitical rivalry between the United States and China. These shifts present both opportunities and risks. AI is creating new growth prospects for Korea's globally competitive information technology sector, while technology restrictions on China have given industries such as shipbuilding and defense an opportunity to regain momentum after years of pressure from Chinese competition. The semiconductor industry, whose technological lead had been narrowing, has also benefited. At the same time, rising protectionism and geopolitical fragmentation impose growing costs on an economy that depends heavily on exports. As China's technological capabilities continue to advance, competition with Korean industry will intensify across an expanding range of sectors.

Since taking office, the Lee administration has generally responded pragmatically in diplomacy and national security while moving quickly to stabilize the economy. Supplementary budgets and other policy measures have supported a recovery and helped fuel a strong stock market. Yet the economic environment is changing rapidly, demanding not only decisive action but greater vigilance.

Korea's nominal GDP growth in the first half of this year is estimated to have reached double digits for the first time in decades, driven largely by surging semiconductor prices and exports fueled by booming AI investment. Forecasts for the profits and growth of Korea's two leading semiconductor companies are unprecedented and have understandably generated optimism in both government and financial markets.

That optimism, however, should not become the basis for economic policy. Policymakers must look beyond the current semiconductor boom and prepare for the period that follows. While today's extraordinary conditions are unlikely to last indefinitely, the government's policy decisions will shape the economy long after the cycle has ended.

One of the greatest risks accompanying the semiconductor boom is widening inequality along with rising inflationary and asset-price pressures. Over the past year, soaring property prices in the Seoul metropolitan area, rising stock prices and rapidly expanding profits at semiconductor companies have already widened wealth disparities while deepening the divide among businesses and workers.

Economic policy must balance production with distribution. The semiconductor industry is one of Korea's most important strategic assets, and the government should continue supporting its global competitiveness. But the state's broader responsibility is to foster a healthy market ecosystem in which new industries and companies can emerge, compete and innovate continuously.

Korea should therefore avoid allowing its economy to become even more dependent on the semiconductor sector or excessively concentrated around two companies, Samsung Electronics and SK hynix. An economic structure built around a small number of dominant firms may generate short-term gains but ultimately weakens resilience. Changes in economic structure inevitably reshape politics and society as well.

History offers a useful lesson. During the late 19th century, the Second Industrial Revolution and large-scale immigration enabled the United States to surpass Britain as the world's leading industrial power. Railroad, steel, oil and financial magnates such as John D. Rockefeller and Andrew Carnegie accumulated enormous wealth during the so-called Gilded Age (1870s–1900). Rapid economic expansion was accompanied by close ties between business and politics, corruption, conspicuous consumption, worsening inequality, labor conflict and repeated financial crises.

As these problems intensified, the United States entered the Progressive Era, pursuing antitrust enforcement, stronger public regulation, financial reform and labor protections in an effort to restore balance between growth, competition and fairness. Economic historians argue that America's enduring strength came not only from the prosperity of the Gilded Age but from its willingness to rebuild institutions that promoted competition and innovation. The renewed rise in inequality since the 1990s and its effects on American politics illustrate how economic structures can shape society for decades.

Korea's unexpected semiconductor windfall is both a blessing and a test of national leadership. The opportunity should be used to strengthen the country's long-term competitiveness and build a more stable foundation for sustainable growth. Economic policy should therefore be designed not only for today's boom but also for the industrial structure, social cohesion and political landscape that will emerge after it. If policymakers keep that broader perspective, the current semiconductor boom can become more than a temporary windfall. It can become the foundation for Korea's next stage of sustainable economic development.