🚨 US Currency Manipulation Pressure and Korean Crisis: Won Appreciation Demands Raising Concerns for SMEs and Export Industries
Today Korean Economic News | 2025.04.27
📌 Hedge Fund Veteran US Treasury Secretary Targets Korean Exchange Rate... Pressure Intensifies Ahead of July Package Deal
💬 As Korea and the US push for a package agreement by July, the US has officially added Korea's currency policy to the agenda. Scott Bessent, the US Treasury Secretary with a hedge fund background, has hinted at possible pressure for won appreciation. Korea spent $11.5 billion last year defending its exchange rate, and demands to reduce foreign exchange market intervention are expected to grow. Experts emphasize the need to actively explain that there has been no artificial currency devaluation.
1️⃣ Easy Understanding
The US government is raising issues with Korea's currency policy. Here's an easy explanation of why this matters and how it might affect our lives.
Recently, the US Treasury Department designated Korea and 8 other countries as "currency monitoring targets." Simply put, this means they will monitor whether these countries are artificially lowering their currency values. In particular, Scott Bessent, the US Treasury Secretary with a hedge fund background, is expected to put more pressure on Korea's currency policy.
Why is the US applying this pressure? When a currency value is low (weak won), export companies benefit. This is because they receive more won for the same amount of dollars when selling products. The US suspects Korea is intentionally keeping the won value low to gain unfair trade advantages.
However, the Korean government has actually done the opposite—spending $11.5 billion (about 15 trillion won) last year to prevent the won from falling too much. This is because sudden exchange rate fluctuations can bring economic chaos.
Now, as the US pursues a "package deal" with Korea by July (an agreement resolving multiple economic issues at once), they are likely to demand that Korea reduce foreign exchange market intervention and increase the won's value (won appreciation).
If the won strengthens as the US demands, export companies could see reduced profits and weakened competitiveness. This could especially impact small and medium enterprises and major export industries like automobiles and electronics, potentially affecting jobs and economic growth.
2️⃣ Economic Terms
📕 Exchange Rate
An exchange rate is the ratio at which one country's currency can be exchanged for another country's currency.
- If the won/dollar exchange rate is 1,350 won, it means 1,350 won is needed to get 1 dollar.
- When the exchange rate rises (weak won), it's favorable for exports, and when it falls (strong won), it's favorable for imports.
📕 Currency Manipulator
A currency manipulator is a country that artificially maintains a low currency value for its own benefit.
- The US Treasury Department evaluates based on three criteria: trade surplus, current account surplus, and foreign exchange market intervention.
- Being designated as a manipulator can lead to disadvantages in trade negotiations with the US.
📕 Foreign Exchange Market Intervention
Foreign exchange market intervention is when a government or central bank buys or sells its own currency in the foreign exchange market to influence exchange rates.
- When the won value falls too much, the foreign exchange reserves are used to sell dollars and buy won.
- Conversely, when the won value rises too much, won is sold and dollars are purchased.
📕 Package Deal
A package deal is a method of negotiating and resolving multiple issues together at once.
- Instead of resolving each issue individually, an overall balance is maintained for comprehensive resolution.
- Negotiations involve exchanging concessions in one area for gains in another.
3️⃣ Principles and Economic Outlook
💡 Background and Strategy of US Currency Pressure
Let's examine the background and strategy behind US currency appreciation pressure on Korea and other major countries.
First, the Trump administration's "America First" trade policy is gaining momentum. President Trump has made reducing the trade deficit a top priority since taking office and is strongly demanding correction of trade imbalances with major trading partners. There is a strong view that the US trade deficit stems from "unfair trade practices" by partner countries. Currency manipulation is pointed out as a representative unfair practice. Treasury Secretary Scott Bessent, with his hedge fund background, is taking a more aggressive approach to currency issues based on his financial market expertise. The US already regularly evaluates major countries' currency policies based on the "1988 Comprehensive Trade Act" and the "2015 Trade Facilitation Act," and has recently strengthened its investigation criteria and scope.
Second, currency pressure is being used as leverage in comprehensive economic negotiations. The US has set currency issues as a core agenda item while pursuing a "package deal" with Korea by July. This package deal is expected to include various agenda items such as trade issues in major industries like semiconductors, automobiles, and steel, as well as technology cooperation and supply chain reorganization. By raising currency issues, the US is employing a strategy to gain an advantageous position in other negotiation items. In particular, there is an intention to obtain relaxation of trade restrictions based on national security or increased US investment in key industries. A Korean government official said, "The currency issue will be a key variable in the package deal," and is working hard to prepare response measures.
Third, US currency pressure is part of a strategy to strengthen global economic leadership. The Trump administration is pursuing a reorganization of the international economic order centered on the US, seeking to check China and exert greater influence on the economic policies of allied countries. While currency policy is a core sovereign domain of national economies, the US is expanding its scope of intervention in the name of "global fair competition." The IMF and G20 also recommend restraint on "competitive currency devaluation," giving US pressure international legitimacy. The US also intends to expand its influence on the regional economic order by strengthening currency monitoring of Asian countries such as Korea, Japan, Taiwan, and China.
US currency pressure goes beyond a simple trade issue—it's part of a multi-layered strategy to protect US economic interests and strengthen global economic leadership. Korea needs to accurately understand these US strategic intentions and respond carefully to avoid being placed in a disadvantageous position in negotiations.
💡 Impact on the Korean Economy and Businesses
Let's analyze the impact of US currency pressure on the Korean economy and businesses.
First, won strength negatively affects the profitability and competitiveness of export companies. When the won value rises by 10%, export companies' operating profit margins decrease by an average of 1-2 percentage points. Industries with high export dependence such as automobiles, electronics, shipbuilding, and steel will be directly impacted. For example, Hyundai Motor and Samsung Electronics could see reduced export margins and be placed at a disadvantage in global competition due to won strength. Small and medium-sized enterprises have less capacity to respond to exchange rate fluctuations than large companies and may face greater difficulties. According to analysis by the Korea International Trade Association, when the won/dollar exchange rate falls by 100 won, export companies' profitability worsens by about 5%.
Second, reduced foreign exchange market intervention could lead to increased exchange rate volatility, raising market instability. The Bank of Korea and the Ministry of Finance have been intervening in the market (smoothing operations) to mitigate rapid exchange rate fluctuations. If such intervention is reduced, the fluctuation range of exchange rates due to external shocks could increase. There are concerns that won value fluctuations could intensify due to external variables such as US-China trade conflicts, Middle East instability, and interest rate changes. Increased exchange rate volatility makes it difficult for companies to establish business plans and manage risks, and can increase the instability of the financial market overall. Exchange rate stability is an important element of economic stability in countries with high external dependence like Korea, and this could be shaken.
Third, differentiated exchange rate impacts by industry and company could accelerate economic restructuring. While won strength is negative for export industries, it can be advantageous for import-dependent industries and domestic industries. Companies in petrochemicals, refining, and energy with high raw material import ratios could benefit from reduced cost burdens. Industries related to overseas travel, global content, and imported consumer goods could also relatively benefit. These differences in industry impact could be a factor promoting structural changes in the Korean economy in the long term. That is, if won strength persists, there is a possibility of accelerating the economic structure transition from simple manufacturing/export-centered to service/technology/domestic demand-centered.
Won strength and reduced foreign exchange market intervention due to US currency pressure are expected to have complex effects on the Korean economy and businesses. While export competitiveness weakening and profitability deterioration are concerns in the short term, there is also the possibility of industrial restructuring and domestic market activation in the long term. Ultimately, it will be important for companies to secure competitiveness through technology, branding, and service beyond price competitiveness while managing risks associated with exchange rate changes.
💡 Korean Government's Response Strategies and Challenges
Let's explore strategies and challenges for the Korean government in responding to US currency pressure.
First, enhancing transparency in currency policy and expanding communication is necessary. A major point of US pressure is that Korea's foreign exchange market intervention is not transparent. In response, Korea needs to clarify the principles and goals of its foreign exchange policy and expand information disclosure about intervention details. In particular, the Bank of Korea and the Ministry of Finance need to emphasize that foreign exchange market intervention is for "mitigating excessive volatility" rather than artificial currency devaluation. In fact, Korea invested $11.5 billion last year to prevent won weakness, which is evidence that they were trying to raise the won value rather than lower it. They need to explain that this was legitimate intervention according to the currency policy guidelines of the International Monetary Fund (IMF) and G20, and seek understanding and support from the international community.
Second, policies to reduce current account surplus and revitalize domestic demand should be implemented in parallel. One of the main criteria the US uses to judge currency manipulation is the size of the current account surplus relative to GDP. Korea recorded a current account surplus of about 4% of GDP last year, which exceeds the US observation criterion of 2%. If the current account surplus persists, won appreciation pressure could increase and US suspicions of currency manipulation could strengthen. Therefore, the government needs to expand policies to increase imports through domestic demand revitalization and promote overseas tourism and service consumption. It could also consider encouraging overseas investment and global M&A by Korean companies to induce capital outflow. This approach has the dual effect of gradually reducing the current account surplus while promoting balanced growth centered on domestic demand.
Third, support is needed to strengthen companies' exchange rate risk management capabilities. In preparation for increased exchange rate volatility due to reduced foreign exchange market intervention, support measures are needed to enhance companies' foreign exchange risk management abilities. In particular, tailored support from the government and financial sector is important because small and medium-sized enterprises are more vulnerable to exchange rate fluctuations than large companies. Expansion of exchange rate fluctuation insurance support from the Export-Import Bank and Korea Trade Insurance Corporation, support for exchange rate hedging costs for small and medium-sized enterprises, and development of various derivative products by financial institutions are needed. Companies also need to transition to business structures less sensitive to exchange rate fluctuations through technological innovation, product differentiation, and higher value-added products, rather than relying only on price competitiveness. The government needs to support this structural transition through R&D support, promoting digital transformation, and fostering new industries.
US currency pressure can be both a short-term crisis and an opportunity to improve the constitution of the Korean economy. The government should increase the transparency of its currency policy, strengthen communication with the US, and focus on fundamental economic strengthening through domestic demand activation and enhancing business competitiveness. In particular, developing a comprehensive response strategy encompassing currency, trade, investment, and technology cooperation is urgent ahead of the July package deal negotiations.
4️⃣ In Conclusion
As US currency pressure intensifies, the Korean economy and businesses face new challenges. The Trump administration is putting currency appreciation pressure on major trade surplus countries, including Korea, to resolve trade imbalances, and has set currency issues as a core agenda item in the "package deal" negotiations being pursued by July. In particular, Treasury Secretary Scott Bessent, with his hedge fund background, is expected to take a more aggressive approach to Korea's foreign exchange market intervention based on his financial market expertise.
If US pressure strengthens, Korea could suffer the double burden of reduced foreign exchange market intervention and won strength. The rise in won value could weaken the competitiveness of major export industries such as automobiles, electronics, and shipbuilding, and worsen their profitability. Small and medium-sized enterprises in particular, with less exchange rate risk management capability than large companies, could be hit harder. Also, reduced foreign exchange market intervention could expand exchange rate volatility, potentially increasing management uncertainty for businesses.
However, this crisis can also be an opportunity to improve the constitution of the Korean economy. The government should increase the transparency of its currency policy and actively explain to the international community that foreign exchange market intervention was a legitimate measure for "mitigating excessive volatility." It should also prepare support measures to gradually reduce the current account surplus through domestic demand activation and strengthen companies' exchange rate risk management capabilities.
In the long term, it is important for the Korean economy to transition from a structure dependent on simple price competitiveness to an industrial structure less sensitive to exchange rate fluctuations through technological innovation and higher value-added production. US currency pressure may seem like a crisis for now, but it can be an opportunity for qualitative growth and sustainable development of the Korean economy.