The Bank of Korea: "Trump's Election Negative for Exports... Outlook Adjustment Inevitable" [Q&A]

September Balance of Payments (Preliminary) Press Briefing
Trump Election Has Significant Negative Impact on Exports
Exchange Rate's Impact on Balance of Payments Is Limited

The Bank of Korea evaluated that the election of former President Donald Trump would have a negative impact on South Korea's export conditions. Although this year's current account surplus is expected to be higher than initially anticipated, the election of former President Trump is expected to have a significant impact on the current account starting next year. Accordingly, it is also expected that future current account forecasts will inevitably be adjusted.

Yonhap News

On the 7th, Shin Seung-cheol, Director of the Economic Statistics Bureau at the Bank of Korea, said at a press briefing held after the announcement of the 'September Balance of Payments (provisional)' that "The general analysis is that the universal tariffs, increased pressure on China, and strengthened protectionism, which former President Trump pledged, will have a significant negative impact on overall export conditions," adding, "The impact of President Trump's election will affect the current account next year, and the current account forecast is expected to be revised."

He assessed that the recent exchange rate entering the 1,400 won range would have a limited impact on the balance of payments. Director Shin said, "Since South Korea's export competitiveness has largely shifted from price to quality competitiveness, the impact of the exchange rate will not be significant," but added, "However, if the exchange rate rises significantly, imports of crude oil and raw materials may increase, potentially reducing the surplus of the current account and trade balance."

He stated that the semiconductor market is expected to maintain an upward trend until the first half of next year. He said, "As far as we understand so far, the semiconductor market is generally expected to maintain an upward trend until the first half of next year in terms of the cycle," adding, "However, by product category, differentiation is occurring between general-purpose semiconductors and advanced semiconductors, and the impact varies depending on the semiconductor industry structure by country, leading to product differentiation and intensified regional competition."

Below is a Q&A with Shin Seung-cheol, Director of the Economic Statistics Bureau.

- You mentioned that the negative factors of Trump's election on exports seem significant. Some institutions predict exports could decrease by up to $44.8 billion. Is it inevitable that next year's current account and goods balance forecasts will be adjusted?

▲There will be changes in trade and export conditions due to former President Trump's election. Generally, the universal tariffs, increased pressure on China, and strengthened protectionism pledged by President Trump are widely analyzed to have a significant negative impact on overall export conditions. We need to analyze more precisely how much it will actually affect our exports. The impact of President Trump's election will affect the current account next year. This year's current account surplus is expected to be higher than the Economic Statistics Bureau's forecast. The bureau is expected to revise next year's current account and goods balance forecasts.

- What impact will former President Trump's election have on the balance of payments?

▲Many changes are expected in trade-related areas concerning the economy. Looking at Trump's pledges, the trade and export conditions seem to be negatively affected. There are sectors and product categories where opportunities or crises may arise. General analysis suggests that conditions will worsen. The Bank of Korea has been monitoring the election results as the most uncertain factor, and when announcing future economic forecasts, we will reflect these aspects and explain in detail how they will affect inflation, exports, and growth.

- The exchange rate entering the 1,400 won range is becoming visible, and it is expected to fluctuate around that level. What impact will the exchange rate have on the balance of payments?

▲Recently, the exchange rate has risen again to the 1,400 won range, and it is expected to have a significant impact on the real economy. However, South Korea's export competitiveness has largely shifted from price to quality competitiveness. Therefore, the impact of the exchange rate will not be as significant as it was in contributing to export growth. However, if the exchange rate rises significantly, imports of crude oil and raw materials may increase, potentially reducing the surplus of the current account and trade balance. We also need to consider the impact of the international oil market and crude oil market. We view the impact of exchange rate increases on the current account as limited. However, the impact of the exchange rate on inflation and import prices will be further considered in the bureau's forecast.

- Looking at the financial account, foreigners withdrew anticipating poor performance of semiconductor companies, but exports increased for 12 consecutive months. How should exports be interpreted?

▲Since the second half of last year, the high growth of the IT sector, including semiconductors, has led customs clearance exports, current account surpluses, and GDP growth. Recently, concerns about semiconductor manufacturers' performance have arisen, raising worries that the customs clearance export growth rate might slow, the current account surplus might decrease, or that this could be a downside risk to growth. It is not a situation where we can predict the semiconductor market, but as far as we understand, the semiconductor market cycle is generally expected to be maintained until the first half of next year.

▲However, by product category, differentiation is occurring between general-purpose semiconductors and advanced semiconductors. General-purpose semiconductors are seeing increased market share and exports in China. The impact varies depending on the semiconductor industry structure by country. In South Korea, some companies have shifted to advanced memory semiconductors, while others are lagging, leading to differences in corporate performance. Overall, semiconductor investment related to servers is expected to have steady demand, while demand in device markets where general-purpose semiconductors are widely used is slowing.

▲In summary, the semiconductor upcycle will be maintained for the time being, but product differentiation and intensified regional competition are occurring. Domestic semiconductor manufacturers are making efforts such as quality development and transitioning to high-spec semiconductors, so we need to observe the impact on exports, current account, and growth.

- Did the large surplus in the current account in September result more from price increases than volume in exports?

▲In the September goods balance, both volume and price factors played a role. When explaining the decrease in goods exports in the third quarter GDP explanation, I separated volume and price factors. Since the second half of last year, the semiconductor cycle improved, increasing both price and volume, but from the third quarter, volume growth slowed or showed signs of decline. The intention was to distinguish price and volume factors to see how these will affect future GDP or real goods exports.

- The net assets in the financial account amount to $12.68 billion, which is quite large. What is the background for this significant figure?

▲(Moon Hye-jung, Head of the Balance of Payments Team) The financial account is at the second-highest level since October 2022. The significant increase in net assets in the financial account is due to foreign securities investment being negative and other assets increasing as exports performed well. There was also a significant increase in cash and deposit assets.