Air Freight News

South Korea’s virus-hit currency may heighten Trump’s ire

South Korea looks like the next big economy in the region to wobble under the strain of coronavirus. As policy makers and financial markets recalibrate, there’s a risk underneath the human and economic toll: tension with the Trump administration.

Asia’s third-largest exporter reported Wednesday that the number of cases of the disease topped 1,000, up from just 51 a week ago. JPMorgan Chase & Co., citing its insurance team’s epidemiology model, warned that infections might peak at 10,000 people next month. Neighbor Japan joined countries restricting travel from afflicted Korean areas.

It all poses a major blow to an economy that had been looking forward to better times in 2020 after the trade war contributed to its weakest growth last year since the global recession a decade ago. Just last Friday, exports showed a blowout 12%-plus surge for the first 20 days of February compared with 2019.

Now JPMorgan economists are shaving their full-year call for growth to 2%, down from 2.3% before the virus. Industrial output will shrink some 10% this quarter, the bank estimates.

What will help prevent an even worse economic outcome: The won has been tumbling against the dollar, making Korean exports noticeably cheaper. As of late Wednesday in Seoul, it was down almost 5% since the virus gripped markets in late January. That’s taken it close to the weakest since 2016 — posing a red flag to Trump administration trade hawks, who had made clear their disdain for exchange-rate devaluation in U.S.-Korea trade talks in 2018.

South Korea remains on the U.S. Treasury’s list of countries monitored for artificially weak currencies, and Trump apparently still has issues even after updating the bilateral deal. “We’ve got enough problems with South Korea with trade,” he said last week while mocking the nation’s Academy Award-winning film “Parasite.”

The currency may get cheaper before it gets a boost. Unlike the Federal Reserve, which has for now signaled it’s too early to act to address any risks from the coronavirus, the Bank of Korea is widely expected to ease on Thursday. Precautions are even being made for the announcement itself: The news will be made via text message and email rather than by an official at the central bank.

The BOK is predicted to cut its policy interest rate by a quarter percentage point, to a record-low 1%. That’s even below the Fed’s 1.5% to 1.75% target. It’s an environment that’s ripe for more Trump criticism of not only the Fed, but of the U.S.’s trade relationship with South Korea.

Bloomberg
Bloomberg

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© Bloomberg
The author’s opinion are not necessarily the opinions of the American Journal of Transportation (AJOT).

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