🚨 Trump's Weak Dollar Strategy: Effects on US-Korea Currency Negotiations and Korean Export Competitiveness

Today Korean Economic News | 2025.04.26

📌 Trump's Weak Dollar Strategy Ignites US-Korea Currency Negotiations

💬 As the US government requests to include currency policy in US-Korea trade discussions, President Trump's 'weak dollar policy' shows signs of becoming a reality. The US claims that currency policies of major trading partners, including Korea, cause unfair trade, and is working to lower the dollar's value to strengthen export competitiveness. Korea, already facing 25% tariffs, may now face additional challenges with currency issues. Experts warn, "If America's weak dollar policy and high tariffs happen at the same time, Korean export companies could face serious damage."

1️⃣ Simple Explanation

President Trump's 'weak dollar policy' is becoming a new challenge for the Korean economy. Let me explain what this policy is and how it might affect us.

Since taking office, President Trump has promoted "America First" to protect US industries. He already imposed 25% high tariffs on Korean products, and now he's playing another card: 'exchange rates.' Exchange rates refer to the ratio between different currencies like the dollar and won. This ratio directly affects imports and exports between countries.

Trump's 'weak dollar' means lowering the dollar's value. When the dollar's value falls, American products become more price competitive and exports increase. On the other hand, products from Korea and other countries become more expensive in the US market, making them harder to sell.

For example, if 1 dollar equals about 1,350 won now, and the US pushes a weak dollar policy making 1 dollar equal 1,200 won, then a Korean product that costs 100 dollars would become 112 dollars in the US market, making it more expensive. Meanwhile, a 100-dollar American product that cost 135,000 won in Korea would now cost 120,000 won, making it cheaper.

This situation adds more burden to Korean export companies already struggling with high tariffs. Major export items like cars, electronics, and semiconductors are expected to be greatly affected. Korean companies are exploring strategies such as improving production efficiency and focusing on developing high-value products in response.

Also, the US might question Korea's intervention in the foreign exchange market (measures to lower the won's value), so the government is clearly stating its principle of not intervening in won value fluctuations while preparing for negotiations with the US.

In this way, Trump's weak dollar policy, along with tariffs, could create a double burden on Korean exports. However, considering the interconnectedness of the world economy, it's expected that the US will find it difficult to pursue an extreme weak dollar policy. Korea should respond with long-term strategies such as strengthening technological competitiveness and diversifying export markets.

2️⃣ Economic Terms

📕 Exchange Rate

Exchange rate is the ratio at which one country's currency is exchanged for another country's currency.

• When the won/dollar exchange rate rises (won weakens), export companies' price competitiveness increases; when it falls (won strengthens), imported product prices decrease.
• It's determined by central bank monetary policies, economic growth rates, trade balances, and geopolitical factors.

📕 Weak Dollar Policy

Weak dollar policy is America's strategy to intentionally keep the dollar's value low.

• It aims to increase US product export competitiveness and reduce trade deficits.
• It can be pursued through various methods including interest rate cuts, foreign exchange market intervention, and trade negotiations.

📕 Currency Manipulator

A currency manipulator refers to a country that artificially lowers its currency value to gain unfair trade advantages.

• The US Treasury designates currency manipulators based on three criteria: trade surplus, current account surplus, and foreign exchange market intervention.
• Being designated can result in disadvantages in trade with the US and negatively impact international credibility.

📕 Current Account

The current account shows the difference between a country's income and expenditure in physical transactions with foreign countries.

• It consists of goods balance (exports/imports), services balance (tourism, intellectual property rights, etc.), primary income balance (investment income), and secondary income balance.
• A continuous current account surplus creates pressure for domestic currency appreciation, while a continuous deficit creates pressure for depreciation.

3️⃣ Principles and Economic Outlook

💡 Background and Effects of the Weak Dollar Policy

• Let's examine why the Trump administration is pursuing a weak dollar policy and its impact on the global economy.

  • First, America's weak dollar policy stems from goals to resolve trade deficits and revive manufacturing. Since taking office, President Trump has consistently claimed that America's trade deficit results from unfair trade and currency manipulation by trading partners. In fact, America's trade deficit reached a record high of about $800 billion in 2024, with deficits of about $350 billion with China and about $30 billion with Korea. Trump is using tariffs and the weak dollar policy as key strategies to reduce this trade deficit and bring manufacturing jobs back to America. The logic is that when the dollar's value falls, American exports become more price competitive while imports become more expensive, potentially improving trade balance.

  • Second, the weak dollar policy can be implemented in various ways and has widespread effects on the global economy. Methods for America to induce a weak dollar include interest rate cuts, direct foreign exchange market intervention, and pressure through trade negotiations. The recent interest rate cut signals from the US Federal Reserve can be seen as part of the weak dollar policy, as is including currency issues in US-Korea trade discussions. This weak dollar policy affects the entire global economy. As the dollar is the world's key currency playing a central role in international trade and finance, fluctuations in the dollar's value directly impact raw material prices, emerging market debt, and global capital flows. In particular, dollar weakness can lead to stronger currencies in emerging markets, potentially negatively affecting export-centered economies like Korea, Taiwan, and Germany.

  • Third, the weak dollar policy has limitations and side effects. Artificially lowering the dollar's value can be a double-edged sword even within the US. A weak dollar can increase inflation pressure through higher import prices, leading to reduced purchasing power for American consumers. It can also cause a decline in asset values for foreign investors (China, Japan, etc.) holding US Treasury bonds, reducing the attractiveness of US bonds. This could lead to increased borrowing costs for the US in the long term. Above all, there's a risk of triggering competitive currency devaluation (currency war) that harms the stability of the international monetary system. The international community, including the G20, has agreed to oppose competitive currency devaluation, so America's unilateral weak dollar policy could face international criticism.

• The Trump administration's weak dollar policy can be seen as an attempt to reorganize the world economic order around America. While it may have short-term effects of increasing US export competitiveness, it's likely to negatively impact global trade order and financial stability. Especially for countries with high export dependence like Korea, it could create a double challenge of exchange rates and tariffs, requiring strategic responses.

💡 Impact on the Korean Economy and Businesses

• Let's analyze the specific impacts of America's weak dollar policy on the Korean economy and businesses, and their response strategies.

  • First, the weak dollar policy could directly hit Korea's exports to the US. When the won/dollar exchange rate falls (won strengthens), the dollar price of Korean products rises, weakening price competitiveness. For example, a Korean product costing 1 million won would be about $770 at an exchange rate of 1,300 won, but about $833 if the exchange rate falls to 1,200 won, making it more expensive. This adds additional burden to Korean companies already bearing 25% tariffs. Products with high price sensitivity, like cars, electronics, and steel, are especially affected. According to the Korea International Trade Association, if the won/dollar exchange rate falls by 10%, Korea's exports to the US are expected to decrease by about 5-7%. This means a reduction in exports of about $10 billion annually.

  • Second, the impact will vary significantly by industry. Industries with high export ratios and price elasticity are expected to be hit harder. In the automotive industry, Hyundai and Kia, which heavily depend on the US market, face risks of profitability deterioration and sales decline due to won strengthening. These companies are responding by expanding US local production and implementing premium strategies. For semiconductors, many export contracts are in dollars, so there's a short-term risk of profitability decline due to exchange rate fluctuations. However, semiconductors have low price elasticity of demand, so the impact on sales volume may be relatively small. Raw material industries like petrochemicals and steel face fierce global price competition, so won strengthening directly affects profitability. In contrast, differentiated product groups like pharmaceuticals and premium consumer goods are expected to be relatively less affected.

  • Third, Korean companies need to respond to weak dollar risks in various ways. In the short term, managing exchange rate volatility through currency hedging is important. Currency hedging is a financial technique to prevent losses from future exchange rate fluctuations by fixing future exchange rates at the current point. In the medium to long term, companies need to maintain price competitiveness through improved production efficiency and cost reduction, while strengthening non-price competitiveness through technological capability and quality improvement. Strategic approaches like expanding US local production, reorganizing global supply chains, and diversifying emerging markets are also necessary. Localization strategies in response to US trade policy changes have become especially important. Samsung Electronics and SK hynix are already making large-scale investments in semiconductor factories in the US, and Hyundai and Kia are pushing to expand electric vehicle production in the US.

• While America's weak dollar policy is a significant challenge for the Korean economy and businesses, it can also be an opportunity to turn crisis into opportunity. While focusing on exchange rate risk management and maintaining cost competitiveness in the short term, fundamental competitiveness should be strengthened through technological innovation, product high-value-added, and market diversification in the medium to long term.

💡 Korean Government's Response Strategies and Policy Directions

• Let's explore the Korean government's response strategies and policy directions against America's weak dollar policy and currency pressure.

  • First, it's important to maintain a principled position on currency policy. Korea basically adopts a floating exchange rate system where exchange rates are determined according to market principles. The government needs to clearly communicate to the international community its principle that "exchange rates should be determined by economic fundamentals and market supply and demand, and will not artificially intervene for competitive devaluation." In fact, Korea has been designated as a 'monitoring list country' in the US Treasury's exchange rate report since 2019, but has never been designated as a currency manipulator. The government should work to increase transparency in foreign exchange market intervention and reduce currency-related conflict factors through current account surplus reduction and domestic market activation. It's also necessary to emphasize the importance of global exchange rate stability and secure international support through multilateral consultation bodies like the G20 and IMF.

  • Second, a strategic approach is needed in US-Korea trade negotiations. As currency issues are included in US-Korea trade consultations, the government needs to prepare thorough preparation and response strategies. It should develop objective data and logic showing that Korea's currency policy complies with market principles, and explain that Korea's current account surplus is due to structural factors (increased savings due to aging, energy import dependence, etc.). An approach emphasizing economic interdependence between the two countries, such as Korea's expanded investment in the US and increased purchases of US LNG and weapons, is also needed. Presenting possibilities for cooperation in future industries like semiconductors, AI, and clean energy beyond currency issues can also be effective. It's particularly important to highlight Korea's strategic value as a core partner for the US in competition with China.

  • Third, strengthening domestic economic fundamentals and complementing vulnerabilities is the fundamental solution. The long-term solution is to improve an economic structure that's too vulnerable to external factors like exchange rates and tariffs. First, export market and item diversification should reduce dependence on the US market and diversify global risks. Policies supporting the strengthening of New Southern and New Northern policies and exploration of emerging markets like India, ASEAN, and the Middle East are needed. Also, the industrial structure should shift to competing on technology and quality rather than price through securing original technology, expanding R&D investment, and fostering high-value-added industries. Activating the domestic market is also an important task. Regulatory innovation to foster the service industry, institutional improvements to promote private consumption and investment, and strengthening the domestic foundation through income-led growth are necessary. These efforts will increase the economy's resilience to external shocks and form the basis for sustainable growth.

• While America's weak dollar policy and currency pressure are short-term challenges for the Korean economy, they can be opportunities to strengthen economic fundamentals and transform the growth model in the long term. The government should maintain its principles on currency policy while simultaneously pursuing strategic trade negotiations and strengthening domestic economic fundamentals.

4️⃣ In Conclusion

With the Trump administration's weak dollar policy and the inclusion of currency issues in US-Korea trade consultations, the Korean economy is likely to face the double challenges of tariffs and exchange rates. The weak dollar policy originated from America's goals of resolving trade deficits and reviving manufacturing, but this is expected to place a considerable burden on Korea, which has high export dependence.

When the won/dollar exchange rate falls (won strengthens), the dollar price of Korean products rises, weakening price competitiveness. Especially if exchange rates become unfavorable in a situation already bearing 25% tariffs, major export industries like automobiles, electronics, and steel will inevitably be hit. According to the Korea International Trade Association, if the won/dollar exchange rate falls by 10%, Korea's exports to the US are expected to decrease by about 5-7%.

By industry, automobile, steel, and petrochemical industries with high US market dependence and price elasticity are expected to be relatively more affected. Companies are responding with medium to long-term strategies like short-term risk management through currency hedging, improving production efficiency, high-value-added products, and expanding US local production.

The Korean government should maintain its principled position that "exchange rates should be determined by market principles and will not artificially intervene" while strategically responding to US-Korea trade negotiations. Particularly, an approach emphasizing economic interdependence between the two countries and presenting possibilities for cooperation in future industries can be effective.

In the long term, the fundamental solution is to create an economic structure strong against external shocks through export market and item diversification, securing original technology, and activating the domestic market. These efforts will be opportunities to turn the current crisis into opportunity and lay the foundation for sustainable growth of the Korean economy.

In the end, while America's weak dollar policy is a clear challenge for the Korean economy, it can be an opportunity to strengthen industrial competitiveness and advance the economic structure in the process of overcoming it. If the government and companies work closely together to respond to short-term shocks while focusing on medium to long-term competitiveness enhancement, this crisis can become a stepping stone for new leaps forward.