The Solution to the Exchange-Rate and U.S.-Investment Dilemma Is Also 'Growth' [Forum] (January 29, 2026)

In order to win November's midterm elections, the Trump administration is seeking to boost the effectiveness of its tariff policy by cutting interest rates to lift stock prices and by holding down the appreciation of trading partners' currencies. On top of this, in exchange for lowering tariffs, it is also demanding $20 billion a year in investment in the United States.

But the three policy goals of propping up the stock market, stabilizing the exchange rate, and securing investment in the United States conflict with one another, making it difficult to achieve all three. In response, the Trump administration plays the tariff-hike card whenever investment in the United States lags or the exchange rate rises.

Investment in the United States raises demand for dollars in the foreign exchange market, which drives the exchange rate up. The United States needs to both increase investment in the U.S. and lower the exchange rate, but it turns out it cannot have both.

Taking advantage of the tendency of the won to move in tandem with the Japanese yen, the United States and Japan are jointly intervening in the yen-dollar market to strengthen the yen and thereby lower the won-dollar exchange rate.

But this effect is likely not to last. Korea, too, is responding to the U.S. tariff hikes by increasing its investment in the United States, but a rising exchange rate brings many side effects, including higher import prices and increased won-denominated investment costs.

Caught in a dilemma between investment in the United States and the exchange rate, this year's $20 billion investment commitment to the U.S. is becoming difficult to carry out.

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The authorities' current push to expand the National Pension's currency-hedging ratio and to reduce its overseas equity investment weighting could also affect dollar supply and demand and help stabilize the exchange rate.

But while this measure helps in the short term, reducing overseas equity investment is not a fundamental solution.

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Raising the growth rate also matters. Korea had, until now, had a higher growth rate than the United States. But since 2021, as Korea has fallen into a low-growth trap, the U.S. growth rate has become higher.

On top of this, as investment in new U.S. industries increases, stock investment in the United States is rising, pushing up the exchange rate. The authorities need to secure new growth engines, raise the growth rate, and increase domestic investment.

When Korea improves the corporate investment environment and its economy escapes the low-growth trap, it will be able to carry out investment in the United States while keeping the exchange rate stable.

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