Indices for consumer and manufacturing confidence around the world are declining as record fuel prices increase production costs, reduce disposable incomes, trim corporate profits, and inflate prices. In South Korea, the situation is no better. Bloomberg news reported on June 30 that South Korean business expectations fell to their lowest level in three years.

But South Korea faces additional obstacles to economic recovery than the ones posed to all countries by the doubling of fuel prices over the past year. The demonstrations over U.S. beef the past few weeks that have crippled the Lee Myung-bak government have also crippled the Korean economy. The commerce ministry as of mid-June estimated that total lost business from the disruptions cost almost US$6 billion. The credit rating agency Moody's assessed last week that the protests could impact Korea's long-term economic performance from the view of international investors because of the likely delays in the Lee government's ability to privatize state-owned financial institutions, and other reforms designed to grow the economy.

Some may argue that the demonstrations were a justified course correction to keep the Lee government humble. The snap decision to re-open the beef market -- a commitment that was made by the Roh government but left uncompleted -- was befitting of Lee's "get-things-done" nickname, the "bulldozer." However, it was apparently troubling to those who felt that the new president was governing in a nonconsensual manner. Rumors and blatantly false stories started spreading like wildfire across Korea's well-connected Internet society that Lee was sacrificing Korean health and safety for his "CEO" relationship with U.S. President George W. Bush. The level of misinformation about the safety of American beef (which meets the safety standards of the authoritative French-based OIE) was astounding. Young Korean moms were out in the streets at candlelight vigils demanding that their government renegotiate to ban beef from cattle older than 30 months from Korean markets. Rumors spread that mad cow-diseased American beef was being secretly ground into lunch meals served at their children's schools.

What got lost in the hysteria was the fact that the most dangerous source of Creutzfeldt-Jakob disease, the brain-wasting ailment that comes from BSE-infected cows, is the ingesting of the brains and spinal cords. Koreans do not purchase or eat this part of the beef imported from the U.S. Moreover, Korean protestors fought so hard for their government to renegotiate with the U.S. the restriction of beef imports from slaughtered cattle older than 30 months of age. Yet the 30-month mark is somewhat arbitrary. When Britain suffered a serious bout of BSE-infected cattle years ago, the 30-month age distinction came into effect, but after safety restrictions were implemented, the 30-month distinction all but disappeared.

The demonstrations continued, however, and South Korean trade officials came to Washington in mid-June to seek a renegotiation of the beef agreement. After eleventh hour talks, U.S. Trade Representative Susan Schwab announced a revision of the agreement in which the Agriculture department would work with the U.S. beef industry to set up a monitoring system to allow only for U.S. beef younger than 30 months to be shipped to Korea "until consumer confidence improves." In the interim, Koreans continued to consume copious quantities of Australian beef (which is statistically not less prone to BSE than American beef), and American pork exports to Korea have risen.

The morphing of the demonstrations into strikes by truckers' and construction workers' unions and protests by teachers' unions represented a snowballing of criticism against the government that forced Lee to accept the resignations of several key officials. Demonstrators called for Lee's resignation and complained of his leadership style -- even though he has not been in office long enough to implement any lasting policy shifts. While the trigger for Korea's self-paralyzing demonstrations were concerns about beef, it is increasingly apparent that the ideological Left in Korea, pushed out of power after over one decade in the seat of the presidency and in control of the national legislature -- and with no major election scheduled for another four years -- have taken their politics to the streets in an effort to subvert the first conservative Korean government in a decade. The liberal opposition lawmakers, voted out of the majority in the April national elections, refused to open the new National Assembly in June, leaving President Lee unable to make his state of the union address to the legislature. This is not about lofty notions of a new Korean nationalism, but about the primitive struggle for political power long a part of politics on the peninsula.

One also has to wonder whether the issue really is Lee's "management style." After all, he was a rather effective and popular mayor of Seoul. Instead, the demonstrations show the degree to which domestic political struggle for power in Korea can ruin a nation. The Left has turned the "candlelight vigil" into an effective political weapon and is on the verge of destroying the Korean economy. Perhaps it is because there is no crisis with North Korea, no major dispute with Japan, and no major bout of anti-Americanism that Koreans can afford the current political chaos. But the costs are real.

Seoul is not the only place where domestic politics have colored political logic. In Washington, the U.S.-Korea FTA remains dead in the water as House Speaker Nancy Pelosi and Senate majority leader Harry Reid have called for a "strategic pause" on all free trade agreements negotiated by the Bush administration, ostensibly because such agreements lose American jobs. Yet, the economic arguments are clear: the FTA will increase trade volume in goods and services by $80-90 billion annually. It will provide the American service sector -- where the U.S. runs a surplus with the rest of the world, and accounts for $8.5 trillion or 80 percent of American GDP and about 80 percent of the private sector workforce -- with access to Korea in financial services, express delivery, telecom and IT services. A non-vote of America's single largest bilateral free trade agreement by the current American Congress, moreover, would send a clear but bad signal about U.S. leadership in Asia. It would be recorded by historians as the data point from which the U.S. ceded its predominant position to China (which is proliferating low-quality FTAs around Asia). So Lee has been the victim of domestic politics not only in his own country, but also in the U.S. Caving on beef and yet not achieving Congressional support of the FTA has been a source of the weak presidency thus far.

Victor Cha is Director of Asian Studies at Georgetown University and former director of Asian Affairs for the U.S. National Security Council.