Bank of Korea Governor: Trade Conflicts Harm Everyone

Tensions from U.S. President Donald Trump’s tariffs are presenting challenges not only for South Korea but are perceived as detrimental for everyone, according to Bank of Korea Governor Rhee Chang Yong. “I really hope this trade tension will dissipate, because it’s bad for everybody,” Rhee stated late Wednesday.

Speaking to media representatives during the IMF-World Bank Spring Meetings, Rhee highlighted that trade tensions are creating headwinds for the South Korean economy and are increasing the downside risk to economic growth. “We will be affected directly by the U.S. tariffs and also indirectly through their tariffs on other countries, such as semiconductor production in Vietnam, car and electronics production in Mexico, and our battery production in Canada.”

Rhee’s remarks followed an update on South Korea’s gross domestic product (GDP), which contracted for the first time since the fourth quarter of 2020, with preliminary figures showing a year-on-year decline of 0.1% in the first quarter. The GDP report coincides with a South Korean delegation heading to the U.S. for trade discussions, with Acting President Han Duck-soo indicating an expectation that the talks will lead to mutually beneficial outcomes. However, South Korea’s Ministry of Trade, Industry and Energy noted that the agenda for the upcoming meeting with the U.S. has not yet been finalized.

The central bank governor remarked that growth would be influenced by political instability in the first quarter, although he expressed hope that such uncertainty would be “behind us” after South Korea’s presidential election on June 3. The impeachment proceedings involving former President Yoon Suk Yeol and Prime Minister Han Duck-soo extended throughout the first quarter, with the Constitutional Court reinstating Han as acting president in March and subsequently removing Yoon from office on April 4.

Earlier this month, the Bank of Korea opted to maintain its benchmark policy rate at 2.75% during its April meeting, emphasizing the need for caution regarding the impacts of increased exchange rate volatility. Trump’s announcements on April 3 resulted in significant fluctuations for the South Korean won in the following days.

When asked why the central bank did not consider a preemptive rate cut to bolster growth, Rhee attributed the choice to concerns over foreign exchange volatility, explaining that it was deemed prudent to hold the rate steady and analyze incoming data before making a decision. “If I make an analogy, it’s like feeling as though you’re entering a dark tunnel, and in that case, it’s better to slow down a little bit until your eyes adapt.”