Trump tariffs pose a greater threat to South Korea’s economy than domestic political chaos, BOK official suggests

Risks posed by South Korea's political turmoil to its economy could subside within half a year, but external pressures owed to possible tariffs on the country's exports to the U.S. are "troublesome," a key Bank of Korea official said.

"We had two presidential impeachments before, and for both cases, the political turmoil or uncertainties have subsided within three to six months," Soohyung Lee, Monetary Policy Board member at the Bank of Korea said Thursday on CNBC's "Squawk Box Asia."

It's possible that the political turmoil may not take as much of a toll on the country's economy, but the downside risks posed by external factors are more worrisome, Lee said.

The potential tariffs proposed by U.S. President-elect Donald Trump "puts a lot of pressure, or perceived pressure, for export-driven countries, including South Korea," Lee said.

Not only would tariffs hit South Korea's exports, they might also reintroduce inflationary forces in the U.S. economy, which could keep U.S. interest rates high and the dollar strong, in turn impacting the Korean won.

With the Chinese yuan potentially depreciating as well, those factors could weaken the South Korean won even further, Lee acknowledged, which might increase volatility in the country's financial markets.

The won was last trading at 1,466.48 against the U.S. dollar, near 15-year lows it hit in December 2024.

Even though the BOK has policy tools such as "foreign reserves and coordination with government agencies like [the] Ministry of Finance," Lee stressed that "the valuation of the Korean won is determined in the market" and the BOK has no specific target level for the forex rate.

Government agencies will only step in to "reduce volatility, if needed," Lee said.

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