As Donald Trump prepares to be sworn in as U.S. president, state-run think tanks in South Korea are raising the possibility of the country being labeled a currency manipulator along with China.
Korea was listed in the U.S. Treasury Department’s currency watch list in October, along with China, Japan, Germany, Taiwan, and Switzerland, for meeting two of the three criteria used to monitor currency practices. There’s concern in Seoul that the U.S. may adjust the criteria so Trump can make good on his pledge to brand China a currency manipulator within 100 days of taking office, and that changes could also apply to South Korea.
While Trump’s focus with Korea has been more on the free trade agreement with the U.S. and how it has affected his country’s trade deficit, the Korea Institute for International Economic Policy warned in a Jan. 4 report that changes to the criteria would bring a “high possibility” of Korea being tagged a manipulator. The think tank also noted that the U.S. may target smaller economies like Taiwan and Korea before China.
Korean authorities have repeatedly said that they only perform “smoothing operations” when volatility in the currency markets is high, and that they don’t target a specific direction or level. Korea’s trade surplus with the U.S. was more than USD23 billion in 2016, and its current-account surplus is expected to amount to $97 billion in 2016, close to seven percent of gross domestic product. MDT/Bloomberg