Trump’s Currency Manipulation Allegations and the Road to a Stronger Won

The U.S. Treasury’s potential redesignation of South Korea as a currency-monitoring country in 2025 has sparked renewed scrutiny of Seoul’s trade policies. While the label itself lacks immediate legal consequences, it signals heightened U.S. pressure on South Korea to address persistent trade surpluses and current account imbalances. Paradoxically, this tension could ultimately strengthen the South Korean won (KRW) if negotiations lead to a resolution of trade frictions.

The Currency Watch List: Leverage, Not Law

South Korea’s inclusion on the U.S. currency-monitoring list hinges on two of three criteria: a bilateral trade surplus exceeding $20 billion (it hit $88 billion with the U.S. in 2024) and a current account surplus exceeding 3% of GDP (5.3% in 2024). However, the third criterion—persistent one-sided foreign exchange intervention—is not met, as South Korea’s central bank has sold dollars rather than buying them to prop up the won. This distinction is critical: the designation is more about political leverage than technical manipulation.

The U.S. Treasury’s focus is on using the label to push South Korea toward reciprocal trade terms. Treasury Secretary Scott Bessent has already announced trade talks with Seoul, demanding adjustments to what Washington views as unfair advantages. For South Korea, the stakes are high: failure to negotiate could lead to retaliatory tariffs, while success might reduce uncertainty and stabilize the won.

Why the Won Could Strengthen

1. Reduced Tariff Pressure: If talks yield a 90-day agreement to lower tariffs, the won could rebound from its recent depreciation (which reached 1,470 KRW/USD in early 2025 due to domestic political instability). A resolution would reduce investor fears of prolonged trade conflict.
2. Structural Reforms: South Korea’s reliance on exports to China leaves it vulnerable to regional shifts, but diversifying trade partners and boosting domestic demand could stabilize the currency long-term.
3. Central Bank Credibility: The Bank of Korea’s transparent foreign exchange policies—avoiding manipulation—contrast with historical precedents like China’s 2019 designation. This credibility may reassure markets that Seoul’s depreciation is cyclical, not intentional.

Risks and Market Sentiment

Despite the potential upside, risks linger. If negotiations fail, U.S. tariffs could rise further, worsening South Korea’s trade terms and prolonging the won’s weakness. Additionally, global macroeconomic pressures—such as China’s economic slowdown or U.S. inflation trends—could amplify volatility.

Conclusion: A Test of Diplomacy and Markets

The won’s trajectory hinges on two factors: the outcome of U.S.-South Korea trade talks and the broader economic environment. If Seoul and Washington reach a compromise—likely involving tariff reductions and increased U.S. imports—capital inflows could reverse the won’s decline. For instance, a 10% tariff reduction on Korean exports to the U.S. could add 0.5% to South Korea’s GDP, boosting investor confidence.

Conversely, a stalemate would prolong uncertainty, keeping the won near its current lows. Yet history suggests that such high-stakes negotiations often end in pragmatic deals. With South Korea’s trade surplus easing from $88 billion to a projected $70 billion in 2025 (as export growth slows and imports rise), the U.S. may find sufficient grounds to ease pressure.

Investors should monitor two key metrics: the pace of tariff negotiations and the Bank of Korea’s foreign exchange reserves. A rebound in reserves—a sign of market confidence—would signal the won’s recovery. In 2025, the won’s story is less about manipulation and more about resolving geopolitical and economic tensions—a path that, if navigated wisely, could lead to strength, not weakness.