Trump's tariffs pose a greater threat to South Korea's economy than its domestic political chaos

The threat posed to South Korea's economy by political turmoil may subside within six months, but external pressure from possible tariffs on the country's exports to the U.S. is “troublesome,” a key Bank of Korea official said.

“We have already had two presidential impeachments, and in both cases the political turmoil and uncertainty subsided within three to six months,” Soohyung Lee, a member of the Bank of Korea's Monetary Policy Council, said Thursday on CNBC's “Squawk Box Asia“

It's possible that the political turmoil won't have that big of an impact on the country's economy, but the risk of a downside caused by external factors is more worrying, Lee said.

The potential tariffs proposed by U.S. President-elect Donald Trump “put a lot of pressure or perceived pressure on export-oriented countries, including South Korea,” Lee said.

Tariffs would not only hit South Korea's exports, but could also reintroduce inflationary forces into the U.S. economy, which could keep U.S. interest rates high and the dollar strong, which in turn would impact the Korean won.

Lee acknowledged that along with the potential depreciation of the Chinese yuan, these factors could further weaken the South Korean won, which could increase volatility in the country's financial markets.

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

Although the BOK has policy tools such as “foreign exchange reserves and coordination with government agencies such as the Ministry of Finance,” Lee emphasized that “the valuation of the Korean won is determined by the market” and the BOK does not have a specific target level for the forex rate.

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

A confluence of internal and external stresses on South Korea's economy led to the country's Ministry of Economy and Finance forecast the country's gross domestic product growth in 2025 will be 1.8% compared to 2.1% forecast for 2024.

BOK in November lowered its forecast for 2025 to 1.9% from 2.1%

To stimulate domestic demand, the Ministry of Finance will do this extend tax exemptions for expenses in the first half of 2025 and introduce incentives for companies to increase wages, Reuters reported.

But for the BOK, “the main concerns will be the inflation rate and financial stability,” Lee said, and “not so much economic growth per se if these three goals are at odds with each other.”

BOK unexpectedly lowered its reference rate by 25 basis points to 3% in November. The move came after 25 basis points discount in Octobermeaning this is the first time since 2009 that the country's central bank has cut interest rates in two consecutive meetings.

South Korea inflation rate in November increased to 1.5% year on year. It was below the 1.7% expected by economists in a Reuters poll, but still up from the 1.3% gain in the previous month.

“We've had pretty strong evidence of a healthy economy over the last 20 years, so I'm cautiously optimistic about economic conditions,” Lee said.

— CNBC's Lim Hui Jie contributed to this report.