Transcript: South Korea plots a post-coup future

This is an audio transcript of the FT News Briefing podcast episode: ‘South Korea plots a post-coup future’

Kasia Broussalian
Good morning from the Financial Times. Today is Monday, June 2nd, and this is your FT News Briefing. Global dealmaking has hit another brick wall. And South Korea might be heading in a new political direction. Plus, US President Donald Trump’s budget proposal is spooking foreign investors. I’m Kasia Broussalian, and here’s the news you need to start your day.

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Donald Trump’s tariffs are slamming the brakes on a dealmaking recovery. The value of deals for buyout funds to purchase companies is on track to fall by 16 per cent from quarter one this year to quarter two. That’s according to the consultancy Bain & Company. The data is a pretty big blow for private equity firms. They expected this to be a big year for deals after higher interest rates kept dealmaking in the doldrums for a couple of years. Trump, with his business-friendly promises to deregulate, was supposed to turn things around. But instead, all the uncertainty from his tariffs has cut the rebound short.

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South Korea holds presidential elections on Tuesday, six months after former conservative president Yoon Suk Yeol staged a failed coup. That threw the country into political turmoil. And now, the left-wing opposition leader, Lee Jae-myung, is expected to win the presidency. And if he does, his victory could shake up economic and security relationships across east Asia. Christian Davies, the FT’s correspondent in Seoul, joins me now to explain all of this. Hey, Christian.

Christian Davies
Hello.

Kasia Broussalian
So now, obviously, it’s been a pretty turbulent time for South Korea. Can you just give me a little bit more background on the political situation?

Christian Davies
Yes, this election was not supposed to happen for another two years. However, six months ago, the conservative president, Yoon Suk Yeol, declared out of nowhere, really, martial law. That was very quickly withdrawn, but this triggered a political crisis during which he was impeached and eventually removed. That led to a leadership vacuum at the top of the South Korean state for many months. At the same time, the South Korean authorities were attempting to arrest President Yoon on criminal charges of insurrection. That provoked demonstrations from his supporters and also counter-demonstrations. And so, this country really has been dealing with this dramatic turmoil at a time when the economy has been slowing, when President Trump has come in Washington and imposed these tariffs. And so a lot of people are really looking forward to hopefully some semblance of normality to return to the country.

Kasia Broussalian
Now, you mentioned Donald Trump’s tariffs. What could a win by the left-wing leader, Lee Jae-myung, mean for South Korea’s trade negotiations with the US?

Christian Davies
The trade negotiations with the US have been going on in the background at a technical level but really nothing high level has been possible simply because South Korea hasn’t had an elected president in place for some time. Lee Jae-myung has appointed as one of his key aides a famously hard-nosed former trade negotiator, national security official which suggests that he may take a tougher line than the more pro-US conservatives. The Korean left tends to historically favour more of a balancing act between US and Japan on the one hand, and China, and to some extent, Russia on the other. So we may see Lee Jae-myung attempting to pursue a more autonomous line in foreign policy, not just on the trade and economic front, but potentially on other areas, including security as well.

Kasia Broussalian
That’s interesting. So, if South Korea adjusts its security relationships, what could that ultimately mean for geopolitics in the wider region?

Christian Davies
Well, I think the important thing to say is that the great disruptive event in US-Indo-Pacific relations will not be the election of the South Korean president. The great disruptive event has already happened, which is the election Donald Trump. And the interesting thing is that depending which issue you’re talking about, a left-wing president in Korea may actually align better with Donald Trump than a conservative president might. And a very good example of that could be talks with North Korea. Conservative presidents in South Korea tend to prefer a more confrontational line towards the North. However, as we know, Donald Trump in the past pursued very ambitious diplomacy with North Korean leader Kim Jong Un, and he may do that again. So you may actually see some degree of alignment on the North Korea issue. On the other hand, you may see a lot of divergence when it comes to trade and when it comes to China. And South Korea, they try not to take a confrontational line towards China. Of course these things cannot be negotiated separately, they’re all going to be part of one giant messy package. So it’s going to be very tricky, actually, whoever wins on Tuesday.

Kasia Broussalian
That’s the FT’s Christian Davies. Thanks, Christian.

Christian Davies
Thanks so much.

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Kasia Broussalian
The UK isn’t putting up many office buildings these days. That’s according to a new real estate industry survey. Commercial construction in the country has hit a decade low. High costs and economic uncertainty are partially to blame, but so is the lack of manpower. Construction crews have been in short supply for years. The news is a bit of a gut punch to the government’s efforts to breathe some new life into the sector. Officials have promised to get Britain building again. Now, there are some areas that are bucking the trend. The tech-heavy corridor between Cambridge and Oxford is seeing some activity. And in London, companies are building new spaces with fitness and yoga rooms to get staff back into the office.

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There are hundreds and hundreds of sections in the budget bill passed by the United States House of Representatives last week, but one of them has foreign investors sounding the alarm. Here to tell us more about it is the FT’s US markets editor, Kate Duguid.

Kasia Broussalian
Hey, Kate.

Kate Duguid
Hi.

Kasia Broussalian
All right, so what’s in this section of the budget bill?

Kate Duguid
Section 899 of the big beautiful bill as it’s being labelled would allow the US to impose additional taxes on companies and investors from countries that it deems to have punitive tax policies. So, if the US decides that Canada’s taxation policy is unfair to the US, it would allow the US to tax any Canadian investment in the US, whether that be a Canadian company that’s headquartered in America, whether it’s Canadian pension funds that are invested in US markets, it’s pretty broad here.

Kasia Broussalian
OK, so Canada is one example, but what other countries’ tax policies are considered, quote, punitive under this definition?

Kate Duguid
So there are countries across six continents. Nearly all of the EU, the UK, Canada, Australia would all be immediately swept up in this. This tax provision can be understood as a response to Pillar Two of the Organisation for Economic Cooperation and Development, their tax framework. So Pillar Two taxes were ones that increased taxes on big US corporations with a large presence abroad. Meta, for example. So any country that currently has any of the tax rules that are included in that Pillar Two, would immediately be deemed unfair.

Kasia Broussalian
Got it. So if this provision passes as is, foreign investors in US stocks and some corporate bonds could face higher taxes?

Kate Duguid
Yes.

Kasia Broussalian
All right. But what about the crucial investors that are buying US government debt, you know, Treasuries?

Kate Duguid
So it’s a little bit ambiguous as to whether or not Treasury bonds would be taxed. For the most part, they are not taxed. Foreign investors are not taxed on their holdings of US government debt. So, a change in that would mark a huge shift in US policy. When we were speaking to lawyers and investors and analysts, they said that the legal language was a bit ambiguous as to whether or not Treasuries would be roped in here. And one of the things that we heard from big bond fund managers was that while they weren’t sure whether or not Treasuries would be exempt as they currently are, that their foreign investors were kind of assuming that they would be.

Kasia Broussalian
But still, it doesn’t really seem all that clear cut. Is that affecting investor confidence in US debt, especially, you know, given that it’s already been shaken by all the tariff chaos?

Kate Duguid
Yeah, it’s a great question. It’s not related to the tariff policy, but it can kind of be seen as the equivalent on the tax side. It’s highly punitive to foreign investors, and it really has the potential to alienate a lot of US allies. You know, that’s not just investors with big portfolios of US assets. It’s also, you know, companies that are based in the US or have branches in the US. About 40 per cent of foreign investment in the US is in the manufacturing sector. So this could have really far-reaching implications for American industry as well.

Kasia Broussalian
But you’ve talked to people on Wall Street about this section of the bill. What are they saying?

Kate Duguid
They’re worried about this. They’re worried about it because they have foreign investors as clients, but they’re also worried because even if Treasuries are not directly taxed, this could chill demand for American assets overall. And that means a fall in stock prices, it means a fall in bond prices, it means depreciation of the dollar. All of those things would be bad for Wall Street. And so I think that’s also part of where the concern is coming from.

Kasia Broussalian
Kate Duguid is the FT’s US markets editor. Thanks, Kate.

Kate Duguid
Thank you.

Kasia Broussalian
You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.