Following the conclusion of Korea-U.S. tariff negotiations and the release of a fact sheet outlining concrete investment conditions, the question of how to prevent industrial hollowing-out has emerged as a new policy challenge. The United States has proposed large-scale investment plans focused on energy, power grids and advanced manufacturing. Ensuring that these initiatives translate into real opportunities for Korean companies must be a priority in follow-up negotiations. With Korean firms already accelerating production shifts overseas, the risk of a hollow-out will grow once the new investments begin in earnest. President Lee Jae Myung met leaders of the seven major conglomerates on Sunday to discuss next steps, but preventing industrial erosion will be just as important as making sure the planned U.S. investments proceed smoothly.
Concerns about a hollow-out are not exaggerated. Korea became the largest investor in the United States for the first time in 2023, and Korean companies have already pledged $21.5 billion in new or expanded local facilities. This is in addition to the $200 billion in cash investment and the U.S. plan to revive its shipbuilding industry through the "Make American Shipbuilding Great Again" - or "MASGA" - initiative. Together, these commitments form an investment package in the United States worth around $350 billion. If factories and jobs continue moving offshore without strong links to domestic production and research and development (R&D), Korea's manufacturing base will weaken, and an industrial hollow-out will become unavoidable.
In this context, U.S. approval of Korea's plan to build a nuclear-powered submarine should become an opportunity to maximize the capabilities of Korea's shipbuilding, nuclear power and defense industries. Reviving the development of small modular reactors and expanding both civilian and military technology applications should proceed quickly, alongside domestic investment in related component sectors. If high-quality jobs continue shifting abroad and Korea's industrial base erodes, young investor preference for U.S. equities is unlikely to change. More domestic firms with growth potential and profitability are needed to create jobs for younger workers and attract capital back into the Korean stock market.
The long-term solution is strengthening Korea's investment environment. Through structural reforms in regulation, finance, the public sector, pensions, education and labor - the six areas highlighted by the Lee administration - the government must convince companies that Korea remains a competitive base for production and innovation. Safeguards should also be built into the fact sheet's implementation to minimize the risk of hollowing out. Korea's participation in the MASGA project and U.S. investments in energy and power infrastructure must be designed to ensure robust participation by Korean suppliers of parts, materials and services. Major firms investing in the United States should reinforce a dual-track strategy that keeps domestic R&D centers, headquarters functions, and high-value manufacturing in Korea, even as overseas facilities expand.
The fact sheet is only a beginning. As U.S. investment rises and capital flows outward, Korea must determine whether it can build a system in which domestic production and capital circulate in a virtuous cycle. Only by succeeding in structural reform and strengthening corporate competitiveness can Korea dispel fears of an industrial hollow-out.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

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