Morgan Stanley: "US-Korea Tariff Deal Avoids the Worst... Downside Risks for Korea Removed"

Global investment bank Morgan Stanley assessed the US-Korea trade agreement reached on July 31 as having "avoided the worst." While uncertainties remain, the bank diagnosed that the downward risks surrounding Korea have been removed for now as a result of this agreement. Morgan Stanley also suggested that the Bank of Korea may revise its growth outlook upward in the future.

Kathleen Oh, Morgan Stanley's Senior Economist for Korea and Taiwan, stated in her report titled "Trade Agreement Reached, The Worst Was Avoided" that "this agreement provides relief as it removes the tariff risk that was targeted solely at Korea."

Starting August 1, Korea will be subject to a 15% mutual tariff and a 15% tariff on automobiles. This matches the base scenario previously presented by Morgan Stanley. Oh explained, "The United States and Korea concluded the trade negotiations before the deadline," and "the tariff rate has been lowered to 15%, and the risk that was applied only to Korea has been removed." However, tariffs on steel, aluminum, and copper still remain.

Oh also stated, "Although we remain cautious about exports due to tariffs, this trade agreement has certainly removed the downside risk," adding that "it can be evaluated positively overall, as Korea has secured an equal footing with other export competitors in the United States." Specifically, she added, "Not only is the automotive sector now at an advantage, but the semiconductor sector will also benefit from the same tariff advantages, thereby mitigating industry-specific risks."

Regarding future economic prospects, she predicted, "The Bank of Korea is likely to revise its growth outlook upward in line with the recently announced economic stimulus measures." However, she also noted that the stability of the housing market will be a major variable in the Bank of Korea's interest rate decision in August. Additionally, regarding earlier media reports that the agreement would include foreign exchange market provisions, she diagnosed, "since it was not actually included in the negotiations, the burden on the government's foreign exchange policy operations has been reduced."