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Tensions from U.S. Tariffs Impacting South Korean Economy, Says Bank of Korea Chief
The ongoing tariffs imposed by U.S. President Donald Trump are creating significant challenges for South Korea, according to Rhee Chang Yong, the Governor of the Bank of Korea. He emphasized that these trade tensions negatively affect not just South Korea but have broader repercussions for everyone involved.
“It is my sincere hope that these trade issues will ease, as they are detrimental to all parties,” Rhee expressed in an interview with CNBC during the IMF-World Bank Spring Meetings. He elaborated that the trade friction has generated significant obstacles for the South Korean economy, resulting in an increased likelihood of slower economic growth.
Rhee pointed out that South Korea feels the impact of U.S. tariffs both directly and indirectly. He noted that beyond the tariffs on South Korean goods, there are consequential effects from U.S. duties imposed on other nations. For instance, the semiconductor production in Vietnam, automotive and electronics manufacturing in Mexico, and battery production in Canada are all areas where South Korea could see indirect effects.
His remarks were made just one day prior to an announcement indicating that South Korea’s gross domestic product (GDP) had contracted for the first time since the final quarter of 2020. Preliminary data for the first quarter revealed a year-on-year decline of 0.1% in the nation’s GDP.
Coinciding with this economic backdrop, a delegation from South Korea is heading to the U.S. for trade discussions. Acting President Han Duck-soo expressed optimism that the upcoming talks will lead to mutually beneficial outcomes for both countries.
Meanwhile, the South Korean Ministry of Trade, Industry and Energy stated that the agenda for the trade meeting with the U.S. is still in the process of being finalized.
In terms of domestic factors, Rhee mentioned that political instability during the first quarter also played a role in dampening economic growth expectations. He remains hopeful that the uncertainties will be resolved following South Korea’s presidential election on June 3.
Throughout the first quarter, South Korea grappled with the impeachment proceedings involving former President Yoon Suk Yeol and Prime Minister Han Duck-soo. While the Constitutional Court restored Han’s position in March, it ultimately ousted Yoon from office on April 4.
In its most recent monetary policy meeting, the Bank of Korea opted to maintain its benchmark interest rate at 2.75%, acknowledging the need to assess the potential impacts of increasing exchange rate volatility.
The announcements from Trump, referred to as “Liberation Day” on April 3, led to dramatic fluctuations in the South Korean won in the following days.
In response to questions regarding the lack of a preemptive rate cut to support growth, Rhee explained that foreign exchange volatility was a key consideration. He advocated for a cautious approach to monetary policy, stating that it is prudent to hold the current rate and closely monitor incoming economic data before making further adjustments.
“If I may liken the situation to entering a dark tunnel, it’s wiser to slow down until our vision adjusts,” he noted, alluding to the current economic uncertainty.
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