ED Korea on US currency monitoring list
U.S. Treasury Secretary Scott Bessent listens during a cabinet meeting at the White House in Washington, Thursday (local time). AP-Yonhap
Seoul must be prepared for strengthened scrutiny
Amid the reignited concerns of a possible hike in U.S. tariffs on Korean imports, the U.S. Department of the Treasury placed Korea on its currency monitoring list along with nine other nations, including China, Japan and Thailand.
This marks the third consecutive time Korea has found itself on the list.
The updated semiannual "Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States" pinned the decision on Korea's $52 billion trade surplus with the U.S. and its current account surplus accounting for 5.9 percent of its GDP. The U.S. Treasury traditionally uses three criteria to assess foreign exchange and the possibility of manipulation — a trade surplus with the U.S. of at least $15 billion, a global current account surplus of 3 percent of GDP and one-way net foreign exchange purchase amounting to 2 percent of GDP.
None of the 10 countries on the list were determined to have manipulative foreign exchange policies. However, the report noted that the recent depreciation of the Korean won does not correspond to Korea's economic fundamentals. This follows U.S. Treasury Secretary Scott Bessent's Jan. 14 comment that the recent weakness of the won was inconsistent with Korea's strong economic fundamentals, which he also called "undesirable."
The report's timing and reference to the local currency, however, speak both of potential upward pressure on the won as well as a strong push to expedite Korean investment in the U.S.
The soaring won-dollar foreign exchange rate hangs over the Korean economic landscape, even as exports surge on the rally of semiconductors and cars. Intensive capital outflows have driven down the Korean won, as retail investors bet on the U.S. market and firms hold onto cash reserves, among other factors. Authorities have struggled to curb the depreciation.
The high won-dollar exchange rate led to top Seoul officials publicly speaking about the difficulty of implementing the annual $20 billion investment into the U.S. toward the $350 billion goal, as part of the tariff agreement the two countries reached last year. Frustrated by what he perceived as a delay in a special bill supporting Korea’s investment in the U.S., U.S. President Donald Trump recently threatened to raise the tariff rate from 15 percent to 25 percent.
Seoul's top senior trade officials, Industry Minister Kim Jung-kwan and Trade Minister Yeo Han-koo, have stepped up efforts to communicate that Korea's U.S. investments will go forward, with Yeo still in Washington as of Sunday. Foreign Minister Cho Hyun will leave Wednesday. Instead of doubting Seoul's commitment to the bilateral tariff agreement and signaling further scrutiny of foreign exchange policies, the U.S. should interpret these efforts as a reaffirmation that Korea will live up to its word.
The inclusion of Korea on the Treasury's monitoring list is likely to have a limited impact on the local currency, market analysts say. What is evident is that the U.S. approach to major trading partners will only grow more aggressive and wide-ranging, requiring vigilance and counter-responses. In its report, the Treasury said that it will broadly analyze countries' use of government policies, including use of government investment vehicles or pension funds, and foreign exchange swaps. Korea's National Pension Fund is the third-largest in the world and is therefore likely to be studied.
Just as Seoul deployed a full-court press strategy in last year's negotiations to land on a 15 percent tariff on Korean exports in return for the $350 billion investment in the United States, the U.S. is deploying a similar strategy. Seoul authorities should be ready with tariff, investment and foreign exchange policies. Korea cannot simply deploy its top officials only after a crisis arises; it must find and maintain a diverse and constant line of communication with the United States.