Trump's tariffs pose a bigger threat to South Korea's economy than domestic political chaos

The risks posed by South Korea's political turmoil to its economy may subside within half a year, but external pressures from possible tariffs on ex- The country's trade with the US is “troubled,” said a top Bank of Korea official.

“We've had two presidents in the past, and for each case, the political turmoil or uncertainty has subsided within three to six months,” said Soohyung Lee, a member of the Monetary Policy Board at Bank of Korea Thursday on CNBC's “Asia's Squawk Box.”

It is possible that the political turmoil may not take as much of a toll on the country's economy, but the external risks posed by external factors are more worrying, Lee said.

The possible tariffs proposed by US President Donald Trump “put a lot of pressure, or perceived pressure, on export-driven countries, including South Korea, ” Lee said.

Tariffs would not only hit South Korean exports, they could also reintroduce inflationary forces in the US economy, which could keep US interest rates high and the dollar strong, which will affect the victorious Koreans.

With the Chinese yuan likely to depreciate as well, these factors could weaken South Korea's gains even further, Lee acknowledged, which could increase volatility in financial markets. the country.

The won last traded at 1,466.48 against the US dollar, near 15-year lows it hit in December 2024.

Even though 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 Korean earnings is determined in the market” and there is no level specific target of BOK. for the forex rate.

Government agencies will only step in to “reduce volatility, if necessary,” Lee said.

Internal and external pressure on the South Korean economy led the country's Ministry of Economy and Finance to a rehearsal the country's gross domestic product growth in 2025 at 1.8%, compared to 2.1% projected for 2024.

The BOK in November cut his forecast for 2025 to 1.9% from 2.1%

To stimulate domestic demand, the finance ministry will expansion of consumption tax exemptions in the first half of 2025, and includes incentives for companies that increase wages, Reuters said.

But for the BOK, “the main concerns were the rate of inflation and financial stability,” Lee said, and “there is not so much economic growth, if the three goals conflict with each other .”

The unexpected BOK cut down on his measurement level by 25 basis points to 3% in November. The move followed a 25 basis point decrease in Octobermaking it the first time since 2009 that the country's central bank cut rates in two consecutive meetings.

South Korea inflation rate in November increased to 1.5% annually. It came in below the 1.7% expected by economists in a Reuters poll, but was still up from the 1.3% rise in the previous month.

“We've had a very strong showing of a strong economy for the past 20 years, so I'm very optimistic about the state of the economy,” Lee said.

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