[Industrial Aftermath of the US Election] ④ Variables in the implementation of ‘Masuga’, such as relaxation of regulations on overseas construction of warships

As the Democratic Party took control of both the House and Senate in the U.S. midterm elections, the Korean shipbuilding and defense industry also came under influence.

Since rebuilding the U.S. shipbuilding industry and strengthening its defense capabilities are bipartisan tasks, it seems likely that the overall framework of industrial cooperation between Korea and the U.S. will be maintained.

However, as the Democratic Party secures leadership in Congress, relaxation of regulations on overseas construction of military ships and legislation to support the shipbuilding industry will be delayed, and there is a possibility that expansion of the defense budget will also be put on hold.

◇ Eager to ease restrictions on overseas construction of warships

According to the shipbuilding industry on the 8th, the prevailing view is that the basic direction of the Korea-US shipbuilding cooperation project 'MASGA' (Make American Shipbuilding Great Again) will be maintained despite the results of the US midterm elections.

Korea-US shipbuilding cooperation has been highlighted in earnest since President Trump took office, but actual cooperation discussions have continued since the Joe Biden administration.

The United States has been seeking cooperation with the Korean shipbuilding industry to solve the problem of lack of construction capacity and skilled manpower at its own shipyards.

However, legislation to support the U.S. shipbuilding industry and relaxation of restrictions on overseas construction of military ships are considered major variables in the future.

According to a report recently released by the Korea Trade-Investment Promotion Agency (KOTRA), the 'American Shipping Act' jointly proposed by both U.S. parties includes the creation of a strategic merchant fleet of up to 250 ships and support for shipyards and ship financing.

Additionally, the Senate National Defense Authorization Act for Fiscal Year 2027 includes a measure allowing some non-combat support ships to be built by allies. Currently, the United States in principle restricts the overseas construction of military ships, so business opportunities for the Korean shipbuilding industry could expand if regulations are eased.

The Democratic Party, which won the election this time, has maintained a generally negative view on overseas construction of warships. This is a position that reflects the concerns of the labor community and the impact on U.S. national security. If this position gains strength due to this blue wave, it could be bad news for the Korean shipbuilding industry that hopes to enter the U.S. warship construction business. In other words, a variable has been created in ‘Masuga’ in terms of execution.

An official in the shipbuilding industry also said, "I don't think there are any major variables in the Masga project. However, if the political situation becomes tense, the project may be delayed."

◇ Pay close attention to trends in defense industry demand and defense budget since the end of the war.

There are mixed views on the impact of the midterm election results on the defense industry as a whole.

There are predictions that global defense demand may slow down as expectations grow for an early end to the Iran war, but there is also a view that major countries, which have sensed security threats from the war, will continue to strengthen their military capabilities.

A defense industry official said, "Even if the war ends, each country will have time to reorganize its security. The market can expand from expendable weapons used directly in war to the introduction of large-scale weapon systems to strengthen security."

Whether or not the U.S. defense budget will be increased is a variable. According to KOTRA, the Trump administration requested approximately $1.54 trillion in defense-related resources for fiscal 2027, but the possibility of budget adjustment has increased due to the Democratic Party's control of Congress.

Congressional checks on the Iran war are also expected to be strengthened. KOTRA predicted that the Democratic Party would strengthen the review and supervision of the legal basis for Iran's military operations and additional defense funds.

However, since the U.S. still procures most of its weapons systems from domestic companies and Korean companies are in the early stages of entering the U.S. market, the immediate impact on the domestic industry is not expected to be significant.

Hanwha Aerospace announced that it is executing without a hitch the contract to supply prototypes of the K9 Wheeled Self-Propelled Howitzer (K9MH) for the Mobile Tactical Artillery (MTC) project signed with the U.S. Army last August. Localization plans, including the establishment of an ammunition production base in Arkansas, USA, are also being pursued as scheduled.