With its sizable, open economy, South Korea often acts as a weathervane of sorts for trade-flow inflection points. And at the moment, one of Asia’s most reliable early-warning systems is flashing something approaching red.

The 1.2% drop in December exports from a year ago had “proceed with caution” written all over it. Contained within that single number was evidence of sliding memory-chip prices, waning demand from China, softening oil prices and growing fallout from Donald Trump’s trade war.

The reading, which missed even the most pessimistic forecasts, shows Apple Inc CEO Tim Cook did not exaggerate when he warned a day later that 2019 looked increasingly dicey for the globe’s most-watched companies – and economies.

South Korea’s export downshift hints at a more troubling story, one drenched in domestic intrigue and external implications.

Only 12 months ago, President Moon Jae-in’s economy was entering a new year with a spring in its step. A month earlier, on November 30, 2018, the Bank of Korea became the first major Asian monetary authority to hike interest rates in four years. The 25 basis-point move marked confidence that Seoul was ready to live without post-Lehman Brothers crisis emergency stimulus.

Lacking success

The Bank of Japan, People’s Bank of China and others dropped hints that they also might tap the brakes. Then came Trump’s tariff arms race. As the US president’s taxes slam Asia’s supply chains, South Korea, like clockwork, is displaying the costs.

Though the focus is on a darkening external sector, events in Seoul remind investors how little success Moon has had these last 605 days rebalancing the economy.

Moon was elected in May 2017 on a platform of “democratizing” the economy, just like his predecessor, Park Geun-hye. She, too, promised to level the playing field to empower small-and-midsize companies and fatten middle-class paychecks.

The idea was wrestling power away from the family-owned giants, or chaebol, towering over the economy and hogging most of the innovative oxygen. Yet at the first hint of trouble, Park turned to the chaebol she pledged to police for help ginning up growth.

We’re now seeing a similar pivot under Moon. Rather than taking the chaebol down a peg, he’s moved on to buttressing their “international competitiveness.” Moon is even dropping hints of scaling back on planned minimum-wage hikes, bowing to a backlash among corporate leaders big and small.

Almost as quickly as conservative Park, Moon, a liberal, has swung sharply from activism to compliance.

“It is important,” Moon said last month, “that new economic policies such as the minimum wage hike and workweek cut are pursued under a general consensus based on the tolerance and harmony of interested parties. If necessary, we need to devise ways to make adjustments.”

Disappointing words that raise grave doubts about Moon’s next 605 days. The minimum wage hike, after all, was merely a down payment on plans to create more energy from the ground up than from the top down. Seoul decided on a 10.9% hourly-pay hike to 8,350 won, or US$7.47, for this year. The next phase would boost the minimum to 10,000 won by 2020.

Real change

The real prize, though, is using tax incentives and regulatory tweaks to catalyze a startup boom. The rebalancing comes with steps to smash monopolistic behavior and increased anti-trust enforcement.

The real reform comes with taxing excess hoarding of cash that could be used to fatten paychecks and invest in new industries. Real change comes with policing cross-shareholdings between friendly companies and internal mergers that reward family dynasties and hurt shareholders.

It requires new corporate transparency measures that make it harder for chaebol families to pass CEO roles in public companies to kids and grandkids whether or not they’re qualified.

If Moon can’t stand fast on something as basic as a minimum wage, how can investors trust he’ll end the “Korea discount” than plagues Asia’s No. 4 economy.

Tycoons hate higher minimum wages because they fear a broader chilling effect on business. Considerable griping about higher wages comes from the small business owners, too, who bear the brunt of higher payroll costs. All the more reason to Moon to reassure employers with bold steps to level the competitive landscape in their direction.

Reform dead zone

Park’s roughly four years in office were a reform dead-zone. What’s more, she was co-opted by the chaebol system she set out to curb. In March 2017, Korea’s first female leader was removed from office amid a bribery and influence-peddling scandal that put Samsung’s leader in jail for a year.

Might Moon’s five-year term also be a lost period for change? There’s still ample time to turn things around. But events on the ground in Seoul aren’t promising.

Moon’s approval rating, for example, has tumbled. In late December, it was below 46%, a far cry from the 80% he enjoyed in mid-2018, according to a Realmeter survey.

Economic worries have overtaken optimism about peace with North Korea. Hyundai Research Institute reckons that each 1 percentage point dip in Chinese growth reduces Korean exports by about 1.6 percentage points.

As Trump tightens the trade screws on Beijing, the 2.6% growth Focus Economists predict this year for Korea could prove wildly optimistic.

That’s an ominous sign for economic activity far beyond Korea. Trends in Seoul suggest this is very much a buckle-your-seatbelts moment as 2019 gets underway.