South Korea expects to keep strong ties with the US regardless of the election outcome next month and will look for opportunities in the ongoing competition between Washington and Beijing, according to Finance Minister Choi Sang-mok.
“Whoever wins this election, Korea and the US are ultimate economic and security partners, so we will continue to invest and cooperate with each other, which is a win-win for both,” Choi said Thursday in an interview with Bloomberg in Washington. He cited investments by South Korean companies in American semiconductor and battery plants.
Choi also touched on recent weakness in the Korean won and said officials are closely watching the currency.
The American vote – now less than two weeks away – adds to uncertainties weighing on the government in Seoul. Whether Donald Trump or Kamala Harris wins, most South Korean businesses expect trade barriers to rise, making it harder for them to maintain their earnings goals, a survey shows.
Trump, the Republican nominee, has vowed to escalate tariffs against China, a key South Korean trading partner, while Harris seeks higher corporate taxes that could weigh on demand for imports from foreign manufacturers.
The former president has in particular criticized polices under the Biden administration that offer subsidies to businesses that reduce reliance on China and increase production in the US. Beneficiaries under the Inflation Reduction Act include major South Korean companies like Hyundai Motor Co.
Separately, Samsung Electronics Co. is a recipient of billions of dollars for its semiconductor plant being constructed in Texas under the Chips Act, another centerpiece of US efforts that comes at the expense of some foreign investment in China.
“The US-China competition is a source of both opportunity and risk, and the way to overcome it is for us to use our diplomacy,” Choi said, citing past talks with Washington to smooth out differences over the US policies.
If the US ends up toughening restrictions on South Korean firms after the election, Choi said Seoul will do what it can in response.
“We’ll make maximum efforts by exercising our diplomatic capacity to minimize burdens for our business activities in the US,” he said.
Regarding Trump’s tariff proposals, Choi emphasized that a rules-based global free trade framework is in the best interest of Korea.
Trump has also referred to South Korea as a “money machine” as he reiterated a demand that Seoul shoulder more of the upkeep for American troops stationed on the Korean Peninsula. Choi downplayed the significance of the term, noting that it came in the midst of an election race and saying actual policy implemented after the new president takes office would matter to Seoul.
Security and economic ties between Washington and Seoul have strengthened since President Yoon Suk Yeol took office in 2022 amid China’s increasing emergence as a business competitor to South Korea. That has spurred more South Korean investment and production in the US, adding to pressure on the won at a time the Federal Reserve kept its rate high to combat inflation.
The won briefly breached the 1,390 per dollar mark in Seoul on Friday, its softest level since July, having lost about 16% in the past three years. Choi, visiting the US for the annual meetings of the International Monetary Fund and the World Bank, said the authorities were aware of market concerns that the won has weakened fast compared to other currencies.
“I am well aware of market concerns that the pace of the won’s movement is relatively faster than that of other currencies,” Choi said. “So we’re closely monitoring market trends while staying alert about currency volatility.”
He added that the dollar’s strength and its greater volatility could mean more turmoil in the global financial markets, and there might be a need of multilateral stabilization efforts.
Fluctuations in the foreign exchange affect everything from consumer prices to export costs in South Korea as the nation relies heavily on imports for energy, food and raw materials. That keeps the authorities on edge and ready to intervene should it be necessary by drawing on foreign reserves that rank among the biggest in the world.
The outlook for South Korea’s economy turned less optimistic this week after the central bank reported gross domestic product barely expanded last quarter. The 0.1% growth from the previous three-month period came below a pace forecast by economists and reflected a softening export rally at a time interest rates stayed high enough to weigh on private consumption and construction activity at home.
Exports are the biggest driver of the trade-reliant economy and the Bank of Korea is expected to downgrade its 2024 growth forecast from 2.4% when it meets for a rate decision next month. The bank began its policy pivot earlier this month by cutting its benchmark rate by a quarter-percentage point to 3.25%, citing cooling inflation and property prices.
Economists surveyed by Bloomberg expect a hold in November as the board assesses the impact of its policy shift. The focus on economic momentum is expected to tighten as the bank increasingly cites uncertainties surrounding exports, including conflicts in the Middle East.
Signs have already emerged that the boom in global demand for memory chips, which South Korea produces the most in the world, is easing. Semiconductor shipments in real terms dropped last quarter, dealing a blow to overall export momentum, according to Bloomberg Economics. Price gains for memory-chip exports also slowed last month, BOK figures showed.
“Chip cycle volatility is a risk,” said Dave Chia, an associate economist at Moody’s Analytics. “The latest export data reveals that depending on the external sector for growth is risky.”
Choi acknowledged uncertainties over the export outlook have grown and said the government is looking for ways to ease them. Still, private consumption is recovering and should get a further boost from the BOK rate cut in October, he said, adding that construction should also emerge from a slump to help the economy grow as projected.
“South Korea is essentially a nation that lives on exports,” he said. “In this era of economic security, it’s difficult to cooperate with countries that have no security cooperation. Since US-Korea ties are based on an security alliance, high-tech cooperation between their businesses in chips, artificial intelligence and space is bound to grow stronger in the future.”
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With assistance from Youkyung Lee.
