Trump's tariffs pose a greater threat to South Korea's economy than internal political chaos

The risks posed by South Korea's political turmoil to its economy could subside within half a year, but external pressures from potential tariffs on the country's exports to the United States are “disturbing,” a senior Bank of Korea official said.

“We have seen two presidential impeachments before, and in both cases, the political turmoil or uncertainty subsided within three to six months,” Suhyung Lee, a member of the Bank of Korea’s monetary policy board, said Thursday on CNBC.Squawk Asia Fund“.

Political turmoil likely won't have a major impact on the country's economy, but the downside risks posed by external factors are more worrying, Li said.

Lee said the potential tariffs proposed by US President-elect Donald Trump “put a lot of pressure, or tangible pressure, on export-dependent countries, including South Korea.”

Not only would the tariffs affect South Korea's exports, but they could also lead to the re-emergence of inflationary forces in the US economy, which could keep US interest rates high and the dollar strong, which in turn affects the Korean won.

With the Chinese yuan also likely to depreciate, these factors could weaken the South Korean won further, Lee admitted, which could increase volatility in the country's financial markets.

The won last traded at 1,466.48 against the US dollar, close to the 15-year low it reached in December 2024.

Although the BOK has policy tools such as “foreign reserves and coordination with government agencies such as the Ministry of Finance,” Lee emphasized that “the valuation of the Korean won is determined in the market” and the BOK does not have a specific target level. for forex price.

Lee said government agencies would only intervene to “reduce volatility if necessary.”

A confluence of internal and external pressures on South Korea's economy led the country's Ministry of Economy and Finance to do so Climate prediction The country's GDP growth in 2025 was 1.8%, compared to 2.1% expected for 2024.

Bank of Korea in November had lowered its expectations For 2025 to 1.9% from 2.1%

To boost domestic demand, the Ministry of Finance will do this – Expanding tax breaks for spending During the first half of 2025, offering incentives to companies that increase wages, Reuters reported.

But for the BOK, “the inflation rate and financial stability will be the main concern,” Lee said, “not economic growth per se, if the three objectives conflict with each other.”

The Bank of Korea unexpectedly Lowering the benchmark interest rate by 25 basis points to 3% in November. This move came after 25 basis points Reduced in OctoberThis makes it the first time since 2009 that the country's central bank has cut interest rates at two consecutive meetings.

South Korea Inflation rate in November It rose to 1.5% on an annual basis. This was lower than the 1.7% that economists had expected in a Reuters poll, but still up from the 1.3% increase the previous month.

“We have a very strong showing of a strong economy over the last 20 years, so I'm cautiously optimistic about economic conditions,” Lee said.

— CNBC's Lim Hui Jie contributed to this report.