The election of Moon Jae-in as the 12th President of South Korea is unlikely to have a dramatic effect on trade, but should bring economic stability to a country that is at the epicentre of a geopolitical crisis.

With neighbouring North Korea growing ever more confrontational, Moon has vowed to take a more diplomatic approach to relations. He has said that under certain conditions, he would travel to Pyongyang to meet with Kim Jung-un, the North Korean dictator.

This would mark a potential return to the Sunshine Policy that ran from 1998 to 2008, through which diplomatic and aid channels were established and which led to a softening in the highly strung, militaristic relationship that has dominated the peninsula since the 1950s.

As number two to the then president Roh Moo-hyun, Moon is viewed as one of the proponents of this policy, which was subsequently abandoned under successive conservative governments.

Further to this, Moon could be more receptive to scaling back or reversing the deployment of the US-deployed THAAD missile defence system, which has aggrieved China and North Korea alike, not to mention millions of South Koreans who have taken to the streets to protest against it.

Should the system be removed, it could help improve South Korea’s currently fraught relationship with China. China appeared to implement unofficial sanctions against South Korea earlier this year, with various travel companies stopping the sale of visits to the country, and the Chinese government warning the Korean retail group Lotte (which has a large market in China) not to make land available to host THAAD.

As it was, Lotte and South Korea have hosted the missile site. Moon’s approach to the system could have long-lasting implications on bilateral relations between the countries.

“This [removing THAAD] would set the stage for a revival of the Six Party Talks and a move towards something resembling the Joint Comprehensive Plan of Action, that was agreed between Iran and the P5+1 group of world powers. While such an outcome will take many months, early moves towards a North-South rapprochement could be picked up by markets and lead to a reduction in risk premiums for South Korean assets and more broadly – but also less significantly – for the rest of Asia,” Julian Wee, senior markets strategist for Asia at the National Australia Bank (NAB) tells GTR.

The reduction in geopolitical risk is likely to be positive too for the Korean won, Wee says, and if a rising tide does indeed lift all ships, this should breed confidence throughout the flailing economy.

Domestic troubles

In December, GTR reported on the pressure the domestic political scandal engulfing now-impeached President Park Geun-hye was having on Korea’s trade economy.

Park has been impeached for abusing her position as president by colluding with Chol Soon-sil, the daughter of a cult leader. Chol befriended Park after her father’s assassination in 1979. Chol is said to have influenced every level of presidential decision making since Park took office in 2013.

The pair coerced large Korean companies, including Samsung, to pay Chol millions of dollars. The scandal gripped the nation and brought millions of people to city streets in protest, eventually resulting in the election of the left-leaning Moon.

The scandal brought home the dominance of the chaebol companies on the South Korean economy, and their unhealthily cosy relations with those in the upper echelons of government.

The scandal coincided with a slump in global trade, upon which the export-led Korean economy is so heavily dependent. Korean shipping company Hanjin went bust, in another sign that the economy was too lopsided.

Analysts encourage reform, but most are sceptical about whether Moon will be able to achieve it, given that his party holds a minority of parliamentary seats, with a three-fifths supermajority generally needed to pass legislation in the country.

“There hasn’t been much discussion on trade policy in the run-up to the Korean election, and we doubt there will be significant changes under the new administration,” Krystal Tan, Asia economist at Capital Economist tells GTR. “On reform, the big hurdle is the fact that Moon’s party only controls 40% of the seats in parliament, which will make passing legislation challenging as he’d need the buy-in from other parties.”

Tan praises Moon for recognising the risk provided by the country’s rising debt levels and ageing population, but again, says that his reform package (which is likely to include an infrastructure stimulus project) will be enough.

“Moon has not been advocating anything like the kind of radical economic reforms the country needs, such as encouraging immigration to help address Korea’s demographic problems or labour reform that makes it easier for employers to hire and fire workers,” she says.

The jury is also out on what effect a return to the Sunshine Policy might have on North Korea’s economy. In February, China banned the import of coal to North Korea, as the secretive state continued to test nuclear weapons. This has starved the country of its most important export.

With few other states willing to trade with the Kim dynasty, a return to the negotiating table is likely the only chance for North Korea to avoid further economic collapse. However, as he has demonstrated time and time again, Kim Jung-un is bellicose and reactionary: whether he would be willing to yield to any external demands is questionable.