"King Dollar Continues Under Trump Policies This Year... Exchange Rate to Break 1500 Won"[American Economic Association 2025]

Annual Meeting of the American Economic Association
Interview with Professor Kim Gyu-il of University of Michigan
US Economy Expected to Grow Steadily at 2% Range This Year
Trump's America-First Trade and Industrial Policies
Investment Expected to Flow into Dollar and US Stock Market
Exchange Rate Surpasses 1500 Won, Expected to Stabilize in 1400 Won Range

"The U.S. economy is expected to achieve a growth rate in the low 2% range this year, sustaining the strength of the dollar and the stock market. The won-dollar exchange rate has broken through 1500 won, and now the 1400 won range could become a 'steady state.'

At the '2025 Annual Meeting of the American Economic Association (AEA)' held in San Francisco from the 3rd to the 5th (local time), Professor Kim Gyu-il of the University of Michigan's Department of Economics told Asia Economy in an interview, "Although the U.S. economic growth rate will slow somewhat this year, it will continue to maintain a solid trend."

From March 3 to 5 (local time), Professor Kim Gyu-il of the Department of Economics at the University of Michigan was interviewed by Asia Economy at the '2025 Annual Meeting of the American Economic Association (AEA)' held in San Francisco, USA. San Francisco ? Photo by Kwon Haeyoung

Professor Kim forecasted that relatively healthy consumption and investment will drive the U.S. economy, and the strong dollar trend will continue this year. Earlier, the U.S. Federal Reserve (Fed) projected GDP growth rates of 2.5% and 2.1% for 2024 and 2025, respectively, figures that exceed the estimated potential growth rate in the high 1% range. The trade and industrial policies focused on domestic interests by President-elect Donald Trump, who will take office on the 20th, were also cited as factors driving the dollar's rise.

He said, "If President-elect Trump imposes a universal tariff of 10% on all imports worldwide, the average U.S. tariff rate would rise from the current 3% level to 17%," adding, "If prices rise due to tariff increases, the dollar's value will increase further." Even if the U.S. economy faces difficulties due to tariff hikes, other countries will be hit harder, "ultimately leading to investment demand flowing into the safe-haven dollar and the U.S. stock market," he explained. However, since the Trump administration raised tariffs 11 months after taking office in its first term, the actual impact of tariff increases is expected to begin appearing from next year.

Professor Kim predicted, "The dollar will show strength for several years, intertwined with President-elect Trump's domestic-centered trade and industrial policies," and forecasted, "The won-dollar exchange rate could rise to 1500 won, and now the 1400 won range could become a steady state."

Corporate-friendly policies such as corporate tax cuts and deregulation by President-elect Trump are also expected to drive stock market gains.

He said, "The U.S. stock market will outperform the bond market again this year," adding, "Although it may not match the annual returns of around 20% seen over the past two years, the U.S. stock market is expected to continue its strong performance this year." The S&P 500, a representative U.S. stock index, achieved annual returns of 24.2% in 2023 and 23.3% in 2024.

Regarding President-elect Trump's policy on deporting illegal immigrants, he noted, "If consumption within the U.S. decreases somewhat due to immigration restrictions, there is a mitigating effect on inflation," and he viewed the impact on labor costs and inflation as limited.

He assessed that despite positive indicators, the qualitative level of the U.S. labor market is low. Professor Kim pointed out, "Recent employment growth has been centered on lower-income sectors such as ride-sharing services like Uber and Lyft and delivery jobs, while IT companies with many high-skilled, high-wage workers have actually reduced employment," adding, "The labor market situation is not qualitatively very good."

Regarding the outlook for U.S. interest rates this year, he expected the Fed to cut rates by 0.25 percentage points one or two times. However, even if inflation rises, he saw little chance that rates would exceed the current 4.25?4.5% range. He said, "The Fed will ultimately move in the direction President-elect Trump wants," and forecasted, "Even if inflation rises due to easing pressures during Trump's second term, the Fed will not raise rates above the current level."

Professor Kim evaluated the economic impact of South Korea's emergency martial law and impeachment crisis as limited. He analyzed, "The driving force behind South Korea's economic development is the private sector, and there are no major problems with the current fundamentals, so there is no need for great concern," adding, "Once the Constitutional Court issues its impeachment ruling, political and economic uncertainties will be resolved."