U.S. will likely reinstate South Korea on currency watch list: Experts

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U.S. will likely reinstate South Korea on currency watch list: Experts

Published: 21 Apr. 2025, 06:00 Updated: 21 Apr. 2025, 09:42

PARK EUN-JEE
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Audio report: written by reporters, read by AI

U.S. President Donald Trump is seen on a screen as a currency trader works at the foreign exchange dealing room of the Hana Bank headquarters in Seoul on April 3. [AP]

The Donald Trump administration will likely redesignate South Korea on its currency-monitoring list given persistently large trade and current account surpluses with the United States over the past months, according to multiple economic experts.

The new administration is set to announce its first Monitoring List as early as April, should the White House follow the practice of the previous administrations.

Despite the report’s limited direct impact, economists believe that the outcome could carry weight at this intricate moment, with tariff negotiations between Seoul and Washington set to start this week.

South Korea has been on the undesirable roster since last November, alongside six other countries like China, Vietnam and Japan, preceded by a short-lived year off the list.

At the time of the designation, the U.S. Treasury Department accused the country of meeting two out of three criteria that warrant inclusion: a significant bilateral trade surplus and current account surplus, a trend that has continued through this year.

“Based on the existing criteria, Korea is likely to remain on the monitoring list,” said Yun Young-jin, an economics professor at Hanyang University.

“In 2024, the country recorded a current account surplus equivalent to 5.3 percent of its GDP, and a bilateral trade surplus with the United States of $88 billion — both figures far exceed the thresholds,” the professor noted.

Despite scant details about the timing of the report's release, some experts believe that the result could be used as a bargaining chip on the U.S. side.

“The biggest concern about being designated as a currency-monitoring country — or a currency manipulator — is that it could place Korea in a disadvantageous position during reciprocal tariff negotiations,” said Park Sang-hyun, a researcher at iM Securities.
“While Korea already imposes very low import tariffs on U.S. goods under the Korea-U.S. FTA, the United States could argue that Korea’s currency trend constitutes a form of a nontariff barrier,” Park said.

Front cover of the U.S. Treasury’s Monitoring Report, released in November 2024 [SCREEN CAPTURE]

U.S. Treasury Secretary Scott Bessent announced last week plans to start trade negotiations with Korea this week, recognizing Korea as a high-priority negotiation partner. Officials in Seoul welcomed the recognition of priority negotiation status, although the talks must be concluded within a 90-day grace period.

As for the third criteria concerning “persistent, one-sided foreign exchange intervention,” experts contacted by the Korea JoongAng Daily ruled out the possibility of the country being caught under the condition.

“In recent months, there has been more dollar-selling intervention than buying in the foreign exchange market,” said Min Gyeong-won, research economist at Woori Bank, adding that “The likelihood [of Korea meeting the criteria or being labeled a currency manipulator] is not high.”

The currency manipulator label is given to a country that meets all three criteria and is also deemed to be showing little transparency in foreign exchange activities. Under the first Trump administration in 2019, the U.S. government designated China as a currency manipulator for the first time in decades.

The won has sharply depreciated against the dollar in recent months, but Bank of Korea Gov. Rhee Chang-yong noted that the trend is mainly attributed to domestic political turmoil, independent of the central bank’s foreign exchange engagement.

“When the Korean won experienced significant depreciation, political instability played a major role. After the martial law announcement, the exchange rate surged from the low 1,400-won range to 1,460 and even 1,470 won,” said the governor during a briefing after a monetary policy decision last Thursday.

He went on to note the structural problem standing in the way of the won’s strengthening, conceding that the present level of the currency is in a depreciation trend according to the bank’s model-based analysis.

“The reason the won isn’t strengthening as much is also because Korea remains heavily tied to trade with China and is more export-dependent than many other countries,” Rhee said. “That makes us more sensitive to U.S. trade and tariff policies. Moreover, political stability in Korea has not yet fully normalized, which is likely contributing to the limited rebound in the currency.”

Aside from the designation itself, experts agreed that Trump’s comments matter more.

“What matters more than the currency report itself is what Trump says after it’s released,” Park said. “For reference, back in 2019 during his first term, the U.S. Treasury labeled China a currency manipulator, even though it didn’t meet the criteria under the Trade Facilitation and Trade Enforcement Act. Instead, the decision was based on the long-dormant Omnibus Trade and Competitiveness Act, raising the potential for highly discretionary judgment.”

BY PARK EUN-JEE, YOON SEUNG-JIN [[email protected]]