South Korea’s economy unexpectedly contracted 0.1 percent in the first three months of this year, the country’s central bank said Thursday, as the Asian export giant reels from months of political chaos and heightened trade tensions. US President Donald Trump’s threatened 25 percent “reciprocal” tariffs on export-dependent South Korea have rattled Asia’s fourth-largest economy, sending Seoul-listed shares tumbling and pushing the currency to its weakest level since 2009. The country is also still emerging from a political crisis triggered by former president Yoon Suk Yeol’s December attempt to suspend civilian rule, which culminated in his impeachment and removal from office this month.”Real gross domestic product (GDP) fell by 0.1 percent compared to the same period last year,” the central bank said, adding that it contracted by 0.2 percent from the previous quarter. “Two developments hit confidence and the economy — fallout from former President Yoon Suk Yeol’s failed martial law attempt and worries about shifts in US trade policies,” said Hyosung Kwon, an economist at Bloomberg Economics. “Looking ahead, we see the economy rebounding in the second quarter of this year, helped by easing political uncertainty at home. But the recovery will likely remain fragile as elevated US tariffs weigh on external demand,” Kwon added.- Dented exports -The country’s economy expanded 1.3 precent in the first quarter of last year but grew less than expected in the fourth quarter, as the fallout from Yoon’s declaration of martial law hit consumer confidence and domestic demand.According to the Korea Customs Service, as of mid-April, the country’s exports had dropped by more than 5 percent compared to the previous year, with declines reported in nine out of the country’s ten major export categories excluding semiconductors. The sharpest fall was in exports to the United States, which plunged by more than 14 percent. The International Monetary Fund this week sharply revised down its growth forecast for South Korea for the year,  cutting it from 2.0 percent to 1.0 percent. “The South Korean economy is facing structural burdens of high inflation and a weak won-dollar exchange rate, and under this dual pressure, a slowdown in growth is becoming increasingly evident,” Kim Dae-jong, a professor at Sejong University, told AFP.Bank of Korea governor Rhee Chang-yong said last week the country’s annual growth rate is now “expected to fall short of the 1.5 percent forecast made in February”.”The tightening of tariff policies, which is much stronger than initially projected, will likely further weigh on growth prospects,” he told reporters in a press conference.He added that “political uncertainty has dragged on longer than expected, delaying the recovery of economic sentiment.” Sluggish domestic demand, along with factors such as large-scale wildfires which tore through swaths of the country’s southeast in late March, had also contributed to the downturn, Rhee said.Addressing parliament, acting president Han Duck-soo underlined “significant” challenges by South Korea.”Unprecedented US-driven tariff policies have created a level of uncertainty that is causing rapid and unpredictable shifts in the global economic landscape,” Han told the National Assembly.US tariffs on steel and automobiles, as well as broader levies imposed by Trump on other goods, are expected to “place considerable strain on Korean industries and businesses,” added Han. 

A year ago Zhang Chundong helped the firm he manages expand into Vietnam, part of a wave of Chinese businesses to choose the booming manufacturing hub since the trade war of US President Donald Trump’s first term.Now the company — a distributor of forklifts made by China’s BYD — is struggling to achieve the fast growth it expected as factory projects stall, and Vietnam waits to see if an enormous 46 percent tariff threatened by Trump this month will materialise.”Some factories that we received orders from are almost ready for operation, but since the tariff news, we got notice that projects and the purchasing of our forklifts are on hold,” said Zhang, manager at Huochacha New Energy Group, whose clients in Vietnam include Chinese electronics company TCL.”We should be in a stage of a rapid growth… (but) due to the tariffs, we are not,” he told AFP.Many Chinese businesses in Vietnam, particularly those exporting directly to the United States, in theory find themselves in a better position than they would be at home, with Beijing already facing levies of up to 145 percent on many products.Hanoi — like much of the rest of the world — has been hit with a blanket 10 percent tariff and has a short window before delayed reciprocal levies come into force in July. There’s still hope that the figure can be negotiated down.But in Vietnam’s northern industrial Bac Ninh province, Chinese businesses that AFP interviewed — most of whom are linked to the export supply chain — said investors were hesitating and anxiety was widespread.Zhang, 39, said he had confidence in the negotiations but explained that three or four of the firm’s projects were on hold.”I’ve talked with a few clients… and the answers at the moment are all the same, we need to keep waiting.” – Investment surge -In Bac Ninh, around 40 kilometres from Hanoi by road, restaurants, massage parlours and convenience stores with Chinese signs jostle for space with Korean shops and eateries.South Korea has long been a huge investor in Vietnam, with electronics giants such as Samsung and LG both in Bac Ninh — but China is fast catching up.Around 10,000 Chinese people lived in the province by the end of 2023, the latest figure available, and expats in the area said the figure had likely surged since then. “In recent years, Vietnam’s economy has been developing, and China and US keep having trade friction, so many companies that were hesitant before came to Vietnam these two years,” said Wang Hongxin, 40, who moved to Vietnam more than a decade ago to work with a Samsung supplier.One of them is Vietnam Kepai, a Chinese firm which makes computer numerical control machines and expanded into Bac Ninh last month, in search of new markets and to escape fierce competition back home.”There are many companies that are successful in China hoping to explore the market in Vietnam. I’ve heard this conversation so many times in Chinese restaurants (here),” said Li Pingwu, the firm’s 33-year-old manager.The nation ranked third among Vietnam’s top investors in 2024, behind only Singapore and South Korea, with a more than three percent jump compared to the previous year. It also led in terms of new investment projects, representing more than a quarter of all newly registered initiatives.- Hours cut -This influx is what appeared to provoke Trump as he announced huge tariffs on Vietnam in early April, with Washington accusing the country of facilitating Chinese exports to the United States and allowing Beijing to get around tariffs.Although a 2024 report by the International Monetary Fund said there was “no clear evidence” of Vietnam’s role in facilitating Chinese exports to the United States, manager Zhang admitted he had seen this happening.”Some of our clients including the ones selling floorboards or moulding machines are doing entrepot trading, involving exports to the US,” he said.Vietnam’s trade ministry has ordered authorities to tighten control over the origin of goods to avoid sanctions by trading partners in the wake of the threatened US tariffs, according to a document seen by AFP on Tuesday.One businessman in Bac Ninh said the surge in investment had once created a worker shortage, but the situation for Vietnamese staff at Chinese companies is now uncertain.Hung, who earns about $270 a month working at a Chinese company producing exterior parts for desktop monitors, said his hours had been cut.”We have stopped getting to work overtime,” said the 30-year-old, who declined to give his full name. “I don’t know how life will be now, as it’s so hard to live here with what I earn.”Wang admitted he was “anxious”.”We originally planned to upgrade some equipment for long-term development, but… because the investment will be quite big, we are a little hesitant now,” he said.

US Treasury Secretary Scott Bessent said Wednesday that Washington has “no currency targets” in its talks with Japan on tariffs, after repeated calls from President Donald Trump for a stronger yen.Japanese media reported meanwhile that a second round of talks in Washington was set for May 1, which will be closely watched as a barometer for efforts by other countries seeking tariff relief.Bessent said Washington is looking at “tariffs, non-tariff trade barriers, currency manipulation and government subsidy of labor and fixed capital investment” in the negotiations with Japan.But he added that there were “absolutely no currency targets.”Japanese Finance Minister Katsunobu Kato said he was ready for “close consultations about exchange rates” with Bessent when they meet Thursday on the sidelines of an IMF gathering in Washington, Japanese media reported.A weak yen makes Japanese exports relatively cheaper, while a strong dollar means that US exports are less competitive.The yen rose significantly since Trump’s tariffs were announced — it was trading at 158 for a dollar in mid-January.The close US ally and world’s number four economy is subject to the same 10 percent baseline tariffs that have been imposed on most countries, plus steeper levies on cars, steel and aluminum. Trump also imposed “reciprocal” tariffs on Japan of 24 percent, but those have been paused for 90 days along with those on other countries except China.Japan’s envoy Ryosei Akazawa met Trump and other senior US officials last week, and Japanese media reported Thursday that he will return for another round on May 1.Japanese broadcaster NHK on Thursday quoted unnamed sources as saying that US negotiators have said Washington cannot make exceptions for Japan.Other media reports have suggested that Tokyo is eyeing concessions such as increasing imports into Japan of US rice and soybeans as well as easing auto safety rules.