🚨 Trump Tariff Concerns Easing and Exchange Rate Decline
Today Korean Economic News | 2025.01.27
📌 Trump Tariff Concerns Partially Eased... Exchange Rate in Early 1430s
💬 As concerns about President Trump's tariff impositions have eased, the exchange rate has fallen, with the dollar-won exchange rate starting at 1435 won and trading in the 1431 won range in early trading.
1️⃣ Simple Explanation
This is news that the Korean won has strengthened as concerns about President Trump's tariff impositions have partially eased. Let me explain what this means for our daily lives and the economy.
The exchange rate falling to the 1430 won range means that the value of the Korean won has strengthened. To explain simply, it means you can buy 1 dollar with fewer won than before. If previously you could buy 1 dollar for 1450 won, now you can buy 1 dollar for 1431 won.
How will this exchange rate change affect our lives? First, it's good news for people planning overseas travel. Using US travel as an example, when exchanging 1000 dollars, you'll pay about 19,000 won less than before. Also, import prices may decrease, potentially making imported clothing, electronics, food, etc. somewhat cheaper.
On the other hand, it could be somewhat disadvantageous for export companies. When the value of the won strengthens, the dollar-denominated price of our products rises, potentially weakening price competitiveness in overseas markets. In particular, industries highly dependent on exports such as semiconductors, automobiles, and shipbuilding may be affected in terms of profitability.
The background to this exchange rate decline has been influenced by easing concerns about President Trump's tariff policies. During his previous term, President Trump strongly pursued protectionist trade policies, and recently mentioned the possibility of imposing high tariffs on imports. However, as these concerns have somewhat eased, global financial market uncertainty has decreased, resulting in an appreciation of the Korean won.
2️⃣ Economic Terms
📕 Exchange Rate
Exchange rate refers to the ratio at which one country's currency is exchanged for another country's currency.
- A dollar-won exchange rate of 1431 won means that 1431 won is needed to obtain 1 dollar.
- When the exchange rate rises, the value of the won weakens (won depreciation), and when it falls, the value of the won strengthens (won appreciation).
📕 Tariffs
Tariffs are taxes imposed on imported goods, used for protecting domestic industries and adjusting trade balances.
- When tariff rates increase, import prices rise, increasing the burden on domestic consumers and potentially decreasing import volumes.
- Tariff policies between countries are an important factor affecting trade negotiations and international relations.
📕 Won Strengthening
Won strengthening is a phenomenon where the value of the Korean won rises, leading to lower import prices and weakened export competitiveness.
- Won strengthening can occur due to various factors such as foreign investment inflows, trade surplus, interest rate differentials, etc.
- Continuous won strengthening can burden the profitability of export companies but can contribute to stabilizing import prices and domestic prices.
📕 Trade Policy
Trade policy refers to the government's guidelines and measures to regulate the trade of goods and services between countries.
- It is implemented through various means such as tariffs, non-tariff barriers, trade agreements, and exchange rate policies.
- Protectionism is a policy that raises trade barriers to protect domestic industries, while free trade is a policy that promotes trade by lowering trade barriers.
3️⃣ Principles and Economic Outlook
💡 Changes in Trump Administration's Trade Policy and Its Impact
President Trump's trade policy showed strong protectionist tendencies during his first term, and a similar stance was expected after his re-election. However, market reactions are now appearing as recent concerns about tariff impositions have eased.
First, it's necessary to look at the major trade policies implemented during the Trump administration's first term. From 2017-2021, President Trump imposed high tariffs on Chinese imports through trade conflicts with China and took a hardline stance on trade with traditional allies such as the European Union, Canada, and Mexico. These policies, under the banner of 'America First', brought significant changes to the global trade order and supply chains.
Second, after this re-election, President Trump has mentioned the possibility of even stronger tariff impositions. During the election campaign, there were mentions of possibly imposing 10% tariffs on all imports and over 60% on Chinese products, which served as a factor increasing uncertainty in global markets.
Third, there could be several factors behind the recent easing of tariff concerns. Inflation concerns in the US, resistance from the business community and consumer groups, and recognition of the complexity of international trade relations may have induced a cautious approach from policymakers. The market's judgment that there could be a difference between policy announcements and actual implementation may also have had an influence.
Fourth, however, this easing of concerns does not signify a fundamental change in policy direction. The Trump administration still considers addressing trade imbalances, expanding manufacturing jobs, and checking China as important policy goals, and is highly likely to utilize various means to achieve these.
These changes can have a significant impact on the global trade environment and financial markets, and will act as an important variable for the Korean economy, which is highly dependent on exports. As policy uncertainty continues, the market is expected to closely observe actual policy implementation and its impact.
💡 Economic Impact and Sustainability of Won Strengthening
Won strengthening affects various economic areas, and its sustainability is determined by several factors.
First, looking at the impact on businesses and industries, won strengthening has differentiated effects by sector. Export-centered companies, especially key export industries such as semiconductors, automobiles, and shipbuilding, may face a risk of declining profitability due to weakened price competitiveness. For example, if the value of the won rises by 10%, dollar-based earnings decrease by that much. On the other hand, industries highly dependent on imported raw materials, such as petrochemicals and steel, can experience the positive effect of reduced cost burdens. Also, sectors with active overseas expansion, such as finance, distribution, and entertainment, may experience valuation losses due to the decrease in the value of overseas assets.
Second, there's the impact on consumers and prices. Won strengthening leads to lower import prices, which can contribute to the price stability of imported consumer goods, overseas travel costs, and products made with imported raw materials. This can have a positive impact on the common people's economy, especially through the stabilization of prices for essential consumer goods such as energy and food. However, there may be a time lag before these effects are fully reflected in consumer prices.
Third, the sustainability of won strengthening is determined by various factors. Interest rate differentials between the US and Korea, global dollar index (DXY) trends, Korea's trade balance and current account flows, foreign investor fund inflows and outflows, and geopolitical risks are important variables in determining the exchange rate. Currently, the possibility of US interest rate cuts, the global dollar weakness trend, and improvement in Korea's trade balance may act as factors for won strengthening, but global economic slowdown concerns and the possibility of reigniting trade conflicts remain as uncertainty factors.
Fourth, policy responses to won strengthening are also important considerations. Rapid exchange rate fluctuations can increase uncertainty across the economy, so the Bank of Korea and the government may take foreign exchange market stabilization measures if necessary. However, an approach focused on mitigating excessive volatility is expected, while respecting exchange rate determination according to market principles.
As such, won strengthening has different impacts on different economic agents, and its sustainability is determined by various domestic and international factors. It's time for businesses and individuals to establish risk management and response strategies based on exchange rate forecasts.
💡 Changes in the Global Trade Environment and Korea's Economic Response Strategies
Changes in US trade policy and the reorganization of the global trade environment provide both significant challenges and opportunities for the Korean economy, which is highly dependent on exports.
First, strategic responses to global supply chain reorganization are needed. The prolonged US-China trade conflict and the spread of protectionism are bringing considerable changes to existing global supply chains. This is leading to the rise of new supply chain strategies such as 'China+1', reshoring, and nearshoring. Korean companies need to disperse risks through diversifying production bases, diversifying sources for core components, and building regional supply chains in response to these changes.
Second, strengthening trade negotiation capabilities and diversifying economic diplomacy with the US have become important. As the US protectionist stance strengthens, strategic responses in bilateral negotiations and multilateral cooperation systems become more important. It's necessary to actively utilize the Korea-US Free Trade Agreement (FTA) and other economic cooperation mechanisms, and to strengthen networks with key stakeholders in the US (Congress, industry, state governments, etc.).
Third, enhancing self-sufficiency through strengthening industrial competitiveness is a key task. To build resistance to external environmental changes, essential competitiveness needs to be enhanced through technological innovation, high-value-added transformation, and strengthening brand competitiveness. In particular, securing technological superiority and global standard leadership in future growth engine industries (artificial intelligence, biohealth, eco-friendly energy, etc.) is important.
Fourth, risk diversification through export market diversification is needed. Strategies are required to lower dependence on specific countries or regions and diversify export destinations to emerging markets, middle power coalitions, etc. Efforts should be made in parallel to strategically develop emerging markets with high growth potential, such as India, ASEAN, the Middle East, and Africa, and to expand free trade agreement (FTA) networks.
Fifth, improving economic constitution through strengthening the domestic market base is a long-term task. An economic structure with high export dependence can be vulnerable to external shocks, so it's important to create a more balanced economic structure through activating the domestic market and strengthening service industry competitiveness.
Through these comprehensive response strategies, Korea's economic resilience and sustainable growth foundation can be strengthened even in an uncertain global trade environment. It's time to pursue structural reforms and innovation for medium to long-term competitiveness enhancement while responding to short-term volatility.
4️⃣ In Conclusion
The strengthening of the Korean won and the decline of the exchange rate to the early 1430 won range, as concerns over President Trump's tariff impositions have eased, is a case that shows the complex interaction between the global trade environment and the Korean economy. Such changes can have mixed impacts in the short term, including pressure on export companies' profitability due to the appreciation of the won and a decrease in import prices.
From a short-term perspective, the exchange rate decline can be a challenging factor for export companies. In particular, key export industries such as semiconductors, automobiles, and shipbuilding may experience performance burdens due to decreased dollar-based earnings. With global economic slowdown concerns already present, adding the exchange rate factor will make profitability management for export companies even more important. On the other hand, stabilization of imported consumer goods prices, reduction in overseas travel costs, and reduction in raw material import costs can be positive factors for consumers and some industries.
In the medium to long term, the direction of the Trump administration's trade policy remains an important variable. Although tariff concerns have partially eased, the America First stance and protectionist trends are likely to continue. Therefore, Korean companies should establish risk management strategies assuming various scenarios and enhance their responsiveness through supply chain diversification, strengthening localization strategies, and transitioning to high-value-added products.
From the perspective of policy authorities, comprehensive responses to mitigate rapid exchange rate volatility and changes in the trade environment are needed. The Bank of Korea should strengthen monitoring for foreign exchange market stabilization, and the government should expand policy support for enhancing trade diplomacy capabilities and industrial competitiveness. In particular, strategic approaches to maximize Korea's interests in the rapidly changing global trade environment are important at this time.
From an individual and investor perspective, opportunities and risks due to exchange rate fluctuations should be considered in a balanced way. If won strengthening continues, exchange rate risk management becomes important when investing in overseas assets, and investment strategies considering differentiated impacts by industry are needed. Also, as consumers, wise consumption methods can be sought to maximize the benefits of falling import prices.
In conclusion, President Trump's tariff policy and the resulting exchange rate fluctuations are important variables that have various impacts on the Korean economy. Rather than being excessively happy or sad about short-term changes, an approach is needed that understands the structural changes in the global trade environment and pursues competitiveness enhancement and risk management from a long-term perspective. In a period of high uncertainty, steady efforts for enhancing fundamental competitiveness along with agile responses to changes are important.