Trump's Trade Policies Pose Greater Risk To South Korea's Economy Than Domestic Martial Law Crisis, Says Central Bank Chief: 'A Lot More Uncertainty'

The governor of the Bank of Korea, Rhee Chang-yong, expressed that the South Korean economy is more threatened by the trade policies of President-elect Donald Trump than the current political crisis in the country.

What Happened: Rhee Chang-yong has indicated that the fallout from President Yoon Suk Yeol’s unsuccessful attempt to impose martial law this week will postpone “critical structural reforms” to the South Korean economy and financial markets, reported the Financial Times on Thursday.

However, he is of the opinion that the economic impact of this political crisis will be “limited” in comparison to the potential repercussions for Korean exporters due to the rise in Chinese competition and the anticipated heavy tariffs from Trump on the US’s leading trade partners.

Rhee stated, “There is a lot of uncertainty. But compared with domestic factors, the external factors are giving us a lot more uncertainty at the moment.” He pointed out Trump’s tariff threat as one of the primary reasons for downgrading South Korea’s growth forecast for this year and the next.

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Why It Matters: South Korea’s economy, the fourth largest in Asia, was already struggling with weak domestic demand, high household debt, and increased competition from Chinese exporters. Last week, the central bank unexpectedly reduced interest rates, with Rhee expressing concerns over Trump’s victory and Republican gains in the U.S.

Despite the political unrest, investors have remained relatively calm. The country’s Kospi stock benchmark was down 6% by the close of trading on Thursday from Tuesday’s close. Rhee attributed “swift and comprehensive prevention measures” to quickly calming and stabilizing the financial market.

Trump’s trade policies have been a cause for concern not only in South Korea but also in other countries. A Goldman Sachs report warned that Trump’s proposed tariffs could lead to significant economic costs, particularly for Canada and Mexico. The report estimated that the GDP of these countries could shrink by as much as 4% under Trump’s full 25% tariff proposal.

Analysts have also raised concerns about the potential repercussions of Trump’s tariffs on the U.S. economy, including the defense sector. A senior adviser from Beijing warned that Trump’s proposed tariffs on Chinese goods could severely affect American manufacturers, potentially reducing U.S. GDP growth by half.

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