Unexpected Harshness in U.S. Tariffs on South Korea

Global investment bank Morgan Stanley has raised concerns over the U.S. Trump administration's reciprocal tariffs on South Korea, describing them as "harsher than expected." Despite some exemptions, the impact on key sectors like semiconductors and IT products could be significant.

Economic Implications and Projections

Economist Kathleen Oh highlighted the limited relief from partial exemptions, pointing out the complexity of overseas component assembly. She warned of a potential 30bp downside risk to exports, even when focusing solely on semiconductors and IT products.

Morgan Stanley anticipates that the current tariff measures could pose a greater downside risk to South Korea's economic growth than the trade conflicts of 2018-2019. A notable slowdown in exports to the U.S. and through ASEAN countries is expected by April, presenting challenges for policymakers.

Interest Rate Outlook

Despite a 75bp rate cut in the past six months, the Bank of Korea is expected to maintain current rates in April. However, a reduction to 2.5% from 2.75% is forecasted for May, with rates potentially reaching 2% by the end of 2025.