South Korea will continue to invest in the US election “no matter who wins”.

Eunkyung Seo, Sam Kim and Jaehyun Eom
| Bloomberg

According to Finance Minister Choi Sang-mok, South Korea expects to maintain strong ties with the United States regardless of the outcome of next month’s election, and will look for opportunities in the ongoing competition between Washington and Beijing.

“No matter who wins this election, Korea and the US are major economic and security partners, so we will continue to invest and cooperate with each other, which is a win-win for both,” Choi told Bloomberg in an interview in Washington on Thursday. He mentioned the investments of South Korean companies in American plants for the production of semiconductors and batteries.

Choi also touched on recent weakness in the Korean won and said officials are keeping a close eye on the currency.

The American vote, less than two weeks away, adds to the uncertainty weighing on the government in Seoul. Regardless of whether Donald Trump or Kamala Harris wins, most South Korean companies expect trade barriers to rise, making it harder for them to meet profit targets, a survey shows.

Trump, the Republican nominee, has vowed to increase tariffs against China, South Korea’s key trading partner, while Harris is seeking to raise corporate taxes that could hit demand for imports from foreign manufacturers.

The former president, in particular, criticized the policy of the Biden administration, which offers subsidies to companies that reduce dependence on China and increase production in the United States. Among the beneficiaries of the Inflation Reduction Act are major South Korean companies such as Hyundai Motor Co.

In addition, Samsung Electronics Co. is getting billions of dollars to build its semiconductor plant in Texas under the Chip Act, another centerpiece of the U.S. effort that comes at the expense of some foreign investment in China.

“The competition between the US and China is a source of both opportunity and risk, and the way to deal with it is to use our diplomacy,” Choi said, citing past talks with Washington to iron out differences over US policy.

If the U.S. tightens restrictions on South Korean firms after the election, Choi said Seoul will do its best to retaliate.

“We will do our best to use our diplomatic capacity to minimize the burden on our business activities in the US,” he said.

Regarding Trump’s tariff proposals, Choi stressed that a rules-based global free trade system is in Korea’s interests.

Trump also called South Korea a “money machine” as he again demanded that Seoul take over most of the upkeep of US troops stationed on the Korean peninsula. Choi played down the significance of the term, noting that it came at the height of the election race, and said the actual policies implemented after the new president takes office will matter to Seoul.

Security and economic ties between Washington and Seoul have strengthened since President Yoon Suk-yeol took office in 2022 amid China’s rise as a business rival to South Korea. That spurred more South Korean investment and manufacturing in the U.S., putting pressure on the U.S. at a time when the Federal Reserve kept interest rates high to fight inflation.

It briefly breached the 1,390 dollar mark in Seoul on Friday, its lowest level since July, having lost about 16% over the past three years. Choi, who is in the US to attend the annual meetings of the International Monetary Fund and the World Bank, said authorities are aware of market concerns that it has weakened rapidly against other currencies.

“I’m well aware of the market’s concern that it’s moving relatively faster than other currencies,” Choi said. “So we’re keeping a close eye on market trends while remaining alert to currency volatility.”

He added that the strength of the dollar and its greater volatility could mean further turmoil in global financial markets, and there may be a need for multilateral stabilization efforts.

Foreign currency fluctuations affect everything from consumer prices to export costs in South Korea, as the country relies heavily on imports of energy, food and raw materials. This keeps the authorities on edge and ready to intervene if necessary, drawing on foreign exchange reserves that are among the largest in the world.

The outlook for South Korea’s economy turned less optimistic this week after the central bank said gross domestic product barely grew in the last quarter. The 0.1% rise from the previous three-month period was below the pace economists had forecast and reflected a softening of export growth at a time when interest rates remained high enough to weigh on private consumption and construction activity at home.

Exports are the biggest driver of the trade-dependent economy, and the Bank of Korea is expected to cut its 2024 growth forecast from 2.4% when it meets next month for a rate decision. Earlier this month, the bank kicked off its policy by cutting its base rate by a quarter of a percentage point to 3.25%, citing cooling inflation and housing prices.

Economists polled by Bloomberg expect a hold in November as the board assesses the impact of the policy change. The emphasis on economic momentum is expected to intensify as the bank increasingly cites uncertainty surrounding exports, including conflicts in the Middle East.

There are already signs that the boom in global demand for memory chips, of which South Korea is the world’s largest producer, is subsiding. According to Bloomberg Economics, shipments of semiconductors fell in real terms last quarter, hitting overall export momentum. Growth in memory chip export prices also slowed last month, BOK figures showed.

“The volatility of the chip cycle is a risk,” said Dave Chia, associate economist at Moody’s Analytics. “Recent export data shows that relying on the external sector for growth is risky.”

Choi acknowledged that uncertainty about the export outlook has increased and said the government is looking at ways to ease it. Still, private consumption is recovering and should get a further boost from the BOK’s rate cut in October, he said, adding that construction should also come out of the slump to help the economy grow as forecast.

“South Korea is essentially an export nation,” he said. “In this era of economic security, it is difficult to cooperate with countries that do not cooperate in the field of security. As US-Korea ties are based on a security alliance, high-tech cooperation between their enterprises in the fields of chips, artificial intelligence and space is sure to strengthen in the future.”

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Contributed by Youkyung Lee.