There is a possibility that the Korean won could depreciate to 1,500 against the U.S. dollar due to the proposed 25 percent car tariffs by U.S. President Donald Trump and the impending decision on President Yoon Suk Yeol's impeachment. The Korean economy, heavily reliant on exports, faces significant vulnerability from these tariff policies. In the past four months since Trump's inauguration, the Korean won has dropped by over 6 percent, which is more pronounced compared to other major currencies like the euro, yen, and yuan. If the Constitutional Court does not impeach Yoon, the exchange rate might reach a year-to-date high above 1,500 won during April to June due to prolonged political instability. However, if Yoon is impeached, the currency could stabilize around 1,450 won.
The depreciation of the Korean won stems from various factors, including Korea's heavy trade dependence and declining competitiveness in export products compared to China. Political uncertainty adds further pressure on the currency. While new negotiations or positive developments may prevent the won from falling below 1,500, a prolonged period at this level could lead to a downgrade in Korea’s sovereign credit rating. On the other hand, economic recoveries in the eurozone and China, along with a slowing U.S. economy, could help stabilize the won towards the end of the year.
Economic Vulnerability and Trade Sensitivity
Korea's reliance on trade makes its currency highly susceptible to external economic pressures. Since President Trump's inauguration, the Korean won has experienced a steep decline exceeding six percent, largely attributed to tariff policies affecting key export sectors. This sensitivity contrasts sharply with other major currencies, whose fluctuations have been much milder. Analysts suggest that Korea's loss of competitive edge in exports to China exacerbates this vulnerability, as market shares once dominated by Korean goods are now shifting towards Chinese products.
Shinhan Bank researcher Baek Seok-hyun emphasizes that Korea's high trade dependence amplifies the impact of tariff changes on its currency. As global trade dynamics shift, Korea finds itself increasingly challenged by competitors such as China, which have gained prominence in similar product categories. This shift not only affects the value of the won but also highlights structural issues within Korea's export-driven economy. For instance, industries previously led by Korea are gradually being overshadowed by Chinese counterparts, contributing to the ongoing depreciation trend. Consequently, without addressing these underlying challenges, the Korean won remains at risk of further weakening under continued external pressures.
Political Factors Influencing Currency Stability
Political uncertainties surrounding the impeachment case of President Yoon Suk Yeol significantly influence the Korean won's stability. Market analysts predict varying outcomes based on the Constitutional Court's ruling. Should the impeachment motion be dismissed, the currency might weaken further to around 1,500 won against the dollar. Conversely, an impeachment verdict could stabilize the won closer to 1,450 won. These scenarios underscore how political events can directly affect economic indicators.
A KB Kookmin Bank report highlights that unresolved political tensions contribute to downward pressure on the Korean currency. With the last hearing held in February and subsequent delays in delivering a final judgment, markets remain unsettled. Hana Bank anticipates that if unfavorable developments persist, the won-dollar exchange rate could breach the 1,500 threshold. However, potential negotiations or favorable shifts might mitigate this risk. Furthermore, prolonged periods at such levels raise concerns about possible downgrades in Korea's sovereign credit rating. Chief economist Kim Jin-wook from Citi Research Korea warns that extending the impeachment ruling beyond mid-April could increase market volatility and negatively impact Korea’s credit outlook. Ultimately, resolving political uncertainties through a conclusive ruling would likely restore investor confidence and promote currency stabilization near previous levels.