KOSPI Falls Below 2500 Again Amid 'Trump Tariffs' Concerns

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The KOSPI fell below the 2,500 mark again following the announcement of reciprocal tariffs by the United States. Given the shock of the reciprocal tariffs and the imminent impeachment ruling, it is expected that volatility in the domestic stock market will inevitably increase for the time being.

As of 9:40 a.m. on the 3rd, the KOSPI was trading at 2,469.31, down 36.55 points (1.46%) from the previous day. The KOSDAQ was down 2.47 points (0.36%) at 682.38. Due to the shock of the reciprocal tariffs, the KOSPI once again fell below the 2,500 level. Both markets started with declines of more than 2%, but then reduced their losses.

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In the Seoul foreign exchange market on the same day, the won-dollar exchange rate opened at 1,471 won per dollar, up 4.4 won from the previous session.

President Donald Trump announced country-specific reciprocal tariffs on all U.S. trading partners from the White House Rose Garden shortly after the market closed on the 2nd (local time). South Korea was subjected to a 25% reciprocal tariff, with China at 34%, Vietnam 46%, Indonesia 32%, Japan 24%, Europe 20%, the United Kingdom 10%, and Australia 10%.

The tariffs, stronger than expected, shocked the market. Ji-won Kim, a researcher at KB Securities, said, "The measures were somewhat stronger than the market expected, raising concerns about inflation and economic slowdown," adding, "Selling pressure is inevitable."

Ji-young Han, a researcher at Kiwoom Securities, said, "As shown by the sharp drop in Nasdaq after-hours futures following the reciprocal tariff announcement, it appears that Trump's tariffs were stronger than the market had anticipated. Now, the baton has passed from Trump to policymakers in South Korea, Europe, China, and other counterparties, and the stock market will enter a short-term caution mode while closely watching their moves. During this process, volatility in the stock market is expected to increase frequently."

There are forecasts that the reciprocal tariffs will inevitably cause significant damage to the domestic economy. Sang-hyun Park, a researcher at iM Securities, said, "It is clear that exports to the U.S. of major export products such as automobiles will be severely affected, and indirect exports to the U.S. through production bases in Vietnam will also suffer significant damage," adding, "From the second quarter, the pressure for further slowdown in domestic growth due to declining exports to the U.S. or ASEAN is expected to increase, making the possibility of zero percent growth this year, which some have mentioned, more visible." He added, "From the perspective of the domestic stock market, the risk of additional short-term corrections has increased, so a cautious approach is necessary."

The won is expected to remain weak due to the reciprocal tariffs, delaying the return of foreign investors. Daeseung Kang, a researcher at SK Securities, said, "In the case of the Korean stock market, the won's weakness should be kept in mind," adding, "Due to concerns about economic slowdown, the won-dollar exchange rate has risen this year, contrary to the decline in the dollar index. Considering that the won-dollar exchange rate rose significantly during the 2018 trade dispute, it will be difficult to expect foreign investors to switch to net buying before a foundation for won strength is established."

However, the shock from the reciprocal tariffs is not expected to be prolonged. Ji-young Han said, "The stock market has already preemptively priced in some of the reciprocal tariff risks through several price adjustments due to tariff uncertainties in March," adding, "Considering this, a short-term sharp decline is inevitable, but the probability of a prolonged price shock or entry into a sustained bear market due to this reciprocal tariff announcement is low." She added, "It is appropriate to assume a base case where the tariff levels decrease through negotiations between the U.S. and counterparties, with the market gradually raising its lows again." San-hae Hwang, a researcher at LS Securities, also said, "The market will likely move toward easing uncertainty as negotiations progress, rather than reacting to current concerns."

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