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Yahoo
11 hours ago
- Business
- Yahoo
South Korea's Record Surplus With US Adds Strain to Tariff Talks
(Bloomberg) -- Supply Lines is a daily newsletter that tracks global trade. Sign up here. Security Concerns Hit Some of the World's 'Most Livable Cities' One Architect's Quest to Save Mumbai's Heritage From Disappearing JFK AirTrain Cuts Fares 50% This Summer to Lure Riders Off Roads NYC Congestion Toll Cuts Manhattan Gridlock by 25%, RPA Reports Taser-Maker Axon Triggers a NIMBY Backlash in its Hometown South Korea's current account surplus with the US surged to a record high last year, highlighting the challenge President Lee Jae Myung faces as he seeks to secure a trade deal with Donald Trump. The surplus reached $118.2 billion in 2024, the highest on record, the Bank of Korea said Friday. The figure has increased every year since 2019, reflecting deepening trade ties — and now potential friction — with Washington. The data serve as the latest reminder of the scale of South Korea's surplus with the US, with the Asian economy already on Trump's top 10 list of nations amplifying the US trade deficit. Lee, who secured the presidency earlier this month after protracted political turmoil following the impeachment of Yoon Suk Yeol, must now engage in trade negotiations with a US administration that favors hardline tactics and unilateral pressure. The two leaders were poised to talk on the sidelines of the Group of Seven summit in Canada this week, but the meeting was called off at the last minute as Trump left the event early amid rising tensions in the Middle East. Lee's nominee for prime minister said the Korean president is hoping to reach an agreement ahead of a July deadline that'll ramp up the baseline tariff rate the country faces. Exports remain vital to South Korea's economy, equivalent to more than 40% of gross domestic product last year. Its supplies of chips, smartphones, cars and batteries are also key elements for global supply chains. With so-called reciprocal tariff rates of 25% still on the table, the stakes for the negotiations are high. 'There's considerable uncertainty around how Trump or other nations will respond,' said Joonyoung Hur, an associate professor of economics at Sogang University. 'The impact on GDP could be significant, but it's hard to quantify with so many variables in play.' Hur estimates that such tariffs may shrink Korea's overall exports by 2%, adding that the maximum estimated impact on GDP growth could reach 0.7 percentage point. The US is Korea's second-largest export destination after China, accounting for 18.7% of outbound shipments worth $127.8 billion last year. The Office of the US Trade Representative said the country ran a $66 billion trade deficit with Korea in 2024, its eighth-largest bilateral gap. That was bound to draw the attention of Trump, who has framed persistent trade shortfalls as a national emergency. The reciprocal tariffs — if reinstated at 25% as announced on the so-called Liberation Day — could slash US-bound shipments by more than half, potentially dragging down Korea's GDP by over 1% by 2030, according to Bloomberg economist Hyosung Kwon. Even if Seoul manages to strike a deal, fallout may still follow. Closer alignment with the US could strain Korea's relationship with China, its biggest trading partner, which took in $133 billion worth of exports last year. Sector Implications Trade exposure underscores Korea's dependence on exports in a few key sectors. Semiconductor shipments totaled $141.9 billion in 2024, accounting for about 21% of South Korea's total exports, according to the Trade Ministry. Automobiles, the second-largest export item, exceeded 10%, while steel products neared 5%. Autos, which make up more than a quarter of Korea's exports to the US, are particularly exposed. Hyundai Motor Co., the country's top carmaker, faces greater risk than peers with local production due to its reliance on South Korean factories. It's already made efforts to mitigate that threat, announcing in March plans for a $21 billion investment in the US for vehicle production and other projects. Automobile exports are expected to be the most severely affected by US tariffs in both the short and long term, the BOK said in a May report. The central bank projected the nation's total goods exports to drop by 0.6%, with automobile shipments to the US sliding by as much as 4%. It also warned of longer-term risks as companies may relocate production to the US to avoid tariffs. Semiconductors have so far avoided direct sectoral tariffs, but face rising scrutiny as Washington considers broader tech-related trade measures. The US Commerce Department is expected to announce within weeks the results of its Section 232 investigations into industries deemed critical to national security, including semiconductors. Battery makers are also in the crosshairs. Despite building US-based joint ventures, South Korean firms rely heavily on components produced at home, exposing them to tariffs that could disrupt electric vehicle rollout plans for both South Korean and American automakers. In May, South Korea's trade surplus with the US fell to its lowest since July 2024, even as America's deficits with other Asian economies widened — a possible sign of shifting trade flows and strategic recalibration. South Korean companies in the automobile, semiconductor and battery industries invested billions of dollars to build out their supply chains in the US during the Biden administration in order to qualify for tax credits. Those investments are now poised to help partially shield them from Trump's tariffs, and may ultimately lead to a drop in goods exports from Korea to the US, narrowing the trade surplus. At the same time, growing direct investment by Korean firms in the US has led to increased income from dividends and interest, contributing to a larger surplus in the primary income account. Primary income also surged to a record last year, accounting for almost 16% of South Korea's surplus with the US, the BOK said. 'The impact of US tariff policy is gradually emerging,' Kim SungJun, director at the BOK's balance of payments team, said at a briefing Friday. 'And it is expected to become more pronounced in the second half of this year.' Ken Griffin on Trump, Harvard and Why Novice Investors Won't Beat the Pros Is Mark Cuban the Loudmouth Billionaire that Democrats Need for 2028? The US Has More Copper Than China But No Way to Refine All of It Can 'MAMUWT' Be to Musk What 'TACO' Is to Trump? 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Korea Herald
2 days ago
- Business
- Korea Herald
S. Korea vows enhanced market monitoring, swift responses amid Middle East crisis
The government will enhance monitoring of the economy and financial markets and devise appropriate responses based on contingency plans amid escalating tensions in the Middle East, the finance ministry said Thursday. The pledge was made during a meeting on macroeconomic issues presided over by Acting Finance Minister Lee Hyoung-il and attended by Bank of Korea Deputy Gov. Ryoo Sang-dai, along with senior officials from the Financial Services Commission and the Financial Supervisory Service, according to the Ministry of Economy and Finance. "Following Israel's airstrike on Iran, volatility in commodity prices and global financial markets has increased," Lee said. "The domestic financial market remains relatively stable, but uncertainty remains high due to the Israel-Iran conflict, as well as unclear US tariff policies," he added. In response, the government is "on alert, closely monitoring the situation and continuing to operate a 24-hour monitoring system," Lee said, adding that a joint emergency response team involving relevant agencies is currently in operation. "The government will respond swiftly, in close coordination with relevant agencies, if necessary, in accordance with contingency plans based on various scenarios," Lee stated. (Yonhap)
Korea Herald
3 days ago
- Business
- Korea Herald
BOK chief backs need for won-based stablecoin, warns of FX risks
Central bank notes price growth slowing, but pandemic-era surges still weigh on consumers Bank of Korea Gov. Rhee Chang-yong said Wednesday that he is not opposed to the issuance of a Korean won-pegged stablecoin and, in fact, sees a need for it. When asked whether the issuance of a won-based stablecoin could trigger inflation by increasing the money supply, Rhee clarified his position. 'I do see the need for a won-backed stablecoin. Let me be clear — I am not against it,' he said during a press conference held at the central bank's headquarters. He added that the impact of such a stablecoin on the monetary system would depend on the form of issuance and the type of assets backing it. However, Rhee raised concerns over potential challenges to foreign exchange controls. 'If a won-based stablecoin is issued, it could facilitate the conversion of won-denominated assets into dollar-based stablecoins, which could increase demand for foreign stablecoins and complicate forex management,' he said. The ruling Democratic Party of Korea has been pushing to allow non-banking institutions to issue a won-based stablecoin. 'We would need to consider the broader implications for bank profitability and structural changes if payment and settlement functions — traditionally handled by banks — are expanded to the non-banking sector," Rhee said. He added that the central bank would work with the Ministry of Economy and Finance and the Financial Services Commission to establish appropriate measures as soon as possible. Wednesday's press conference was also held to review the current inflation trend in Korea. In the first five months of 2025, consumer prices rose 2.1 percent — slightly higher than the 1.8 percent increase seen in the last six months of 2024, but still near the central bank's target of 2 percent. 'The pace of growth has stabilized, but prices remain elevated due to the sharp rise that occurred during the COVID-19 pandemic,' Rhee said. From 2021 to May 2025, overall consumer prices increased by 15.9 percent. Meanwhile, the cost of living index — which includes a selected subset of essential items — rose 19.1 percent during the same period, outpacing general inflation by 3.2 percentage points and highlighting rising household burdens. The Bank of Korea also commented on the potential inflationary impact of recent US tariff measures. The central bank noted that the tariffs could actually help ease inflationary pressure in Korea, given its heavy reliance on exports to both the US and China. The logic: weaker global demand could lead to lower raw material prices. Additionally, if China redirects its low-cost goods to markets like Korea due to reduced exports to the US, it could create further deflationary pressure. However, the BOK emphasized the uncertainty surrounding these projections. 'Since the implementation and scope of tariffs could vary depending on negotiation outcomes, factors such as won depreciation or partial supply chain disruptions could offset any downward pressure on prices,' the central bank said in a statement.
The Star
3 days ago
- Business
- The Star
BOK chief says he is not against won-based stablecoins but has forex concerns
FILE PHOTO: Rhee Chang-yong, Governor of the Bank of Korea, participates in a panel titled 'How Should Central Banks Battle High Inflation?' at the 2023 Spring Meetings of the World Bank Group and the International Monetary Fund in Washington, U.S., April 14, 2023. REUTERS/Elizabeth Frantz/File Photo SEOUL (Reuters) -South Korea's central bank governor said on Wednesday he was not against issuing won-denominated stablecoins but had concerns about managing capital flows. "Issuing won-based stablecoin could make it easier to exchange them with dollar stablecoin rather than working to reduce use of dollar stablecoin. That in turn could increase demand for dollar stablecoin and make it difficult for us to manage forex," Rhee Chang-yong told a press conference in Seoul. Stablecoins, a type of cryptocurrency designed to maintain a constant value – typically pegged 1:1 to the U.S. dollar – are widely used by crypto traders to move funds between tokens, and are starting to be adopted by more and more companies. Regulators in many countries are skeptical about cryptocurrencies as they are seen as speculative and as competitors to national currencies. Rhee's comments come as South Korea's left-leaning President, Lee Jae Myung, is seen delivering on his election pledge to allow companies to issue won-based stablecoins. The ruling Democratic Party proposed earlier this month the Digital Asset Basic Act, designed to set up regulatory infrastructure needed to help local companies issue won-denominated stablecoins. President Lee appointed a former crypto firm chief, Kim Yong-beom, as his chief policy officer in his first week in office, further boosting speculation that the government would take action to allow issuance of stablecoins backed by the Korean won. Kim has previously served as vice chairman of the Financial Services Commission before becoming chief executive of Hashed Open Research, a think tank affiliated with crypto venture capital firm Hashed Ventures Inc. Governor Rhee has previously told reporters that allowing stablecoins to be issued by local companies, rather than the central bank, could significantly undermine the effectiveness of monetary policy and capital flow control. (Reporting by Jihoon Lee; Editing by Tom Hogue and Muralikumar Anantharaman)
Bloomberg
3 days ago
- Business
- Bloomberg
BOK Warns of Inflation Risks From US Tariffs, Israel-Iran Crisis
While South Korea's inflation has stabilized near the central bank's 2% target, US tariffs and the Israel-Iran conflict are adding uncertainty to the outlook, according to the Bank of Korea. Households also remain burdened by high costs of essentials like food and housing, the BOK said in a semiannual review of inflation published Wednesday. Structural factors, such as housing price imbalances between metropolitan areas in Seoul versus the rest of the country, are keeping living costs high compared with other major economies, the central bank said.
