South Korea is having an unlikely churn in the Washington rumor mill, thanks to Bob Woodward's book on Donald Trump's dumpster fire of a presidency.
One of many disturbing accounts in the aptly named "Fear" has the U.S. leader looking to punish Korea's economy. In January 2018, Trump reportedly railed against the money he thought Korea siphons from America. Trump's solution: Tear up a U.S.-Korea free-trade deal. Though aides managed to prevent that, Trump remains raring to punish a Seoul he views as vulnerable.
Odd, considering that investors do not. South Korea is in harm's way as Trump assaults the global trading system. Its export-led economy, one dominated by electronics companies, carmakers and shipbuilders reliant on overseas demand, is bracing for a rocky 12 months ahead.
What, then, accounts for the relative calm in Korean markets? Investors are wisely sorting the economic wheat from the chaff.
"With a current account-surplus of 5% of GDP and forex reserves of $400 billion, exhibit-A [of global financial strength] is South Korea," says Udith Sikand of Gavekal Research. "Indeed, Korean equities have begun to disengage from the emerging market rump, being flat in U.S. dollar terms in the last two months."
Flat is good these days, considering market volatility from Jakarta to Mumbai. South Korea is certainly in danger of becoming collateral damage as Trump trips up China and other Asian exporters. But so are Japan, Singapore, Taiwan and others. That goes doubly for Indonesia, the Philippines and India, all of which are grappling with plunging currencies. There is even chatter about another emerging-market crisis.
Not South Korea, though. It helps that growing wealth is lifting Korea out of emerging market ranks -- while it still belongs to the MSCI emerging markets index, the most widely followed, it has exited others, such as the FTSE's. But still it could have been caught in the same whirlwind. What then are officials in Seoul doing right that peers in Jakarta, Manila, New Delhi and elsewhere should be emulating?
Policy flexibility, for one thing. Between Bank of Korea liquidity bursts, fiscal recalibration and macroprudential experimentation, Seoul has a knack for confounding the naysayers. In 1998, for example, Korea was the first economy to recover from the Asian financial crisis that began in Bangkok in July 1997.
A decade later, amid the "Lehman shock," Korea outmaneuvered the shortsellers. In October 2008, traders buzzed about balance-of-payments shortfalls in Seoul, fretting Korea might be the national equivalent of Bear Stearns. To no avail. Korea nimbly steered around the worst of the crisis.
Korea also had a good "taper tantrum" in 2013. Fears of aggressive Federal Reserve rate hikes sent tidal waves of capital rolling away from Indonesia, Thailand and other economies at the center of the 1997 turmoil. Korea's government debt, meantime, became a safe haven.
Another lesson: Mind the national balance sheet. It helps, of course, that economic growth is around 3%. Equally important is that President Moon Jae-in has fiscal latitude. In fact, he was partly elected in May 2017 on a pledge to expand long-term public spending by about 7%. He could always up that figure should global headwinds intensify.
Seoul's projected 1.8% budget deficit, as a percentage of gross domestic product, is a nice thing to have in a world in which China, Japan, Europe and the U.S. are drowning in debt.
"South Korea has spare capacity as shown by its negative output gap and so should be able to accommodate a fiscal expansion with only mild inflationary pressure building up," Sikand says. "Putting it together, Korea's strong macro balance sheet and fiscal policy flexibility."
Finally, expect the unexpected. Trump's assault on global trade has Seoul drawing up contingency plans -- fiscal, monetary and regulatory. In late August, Moon announced a $420 billion stimulus effort, just in case.
Yet the Trump shock, in many ways, exposes how two crises of the past never really ended: Asia's in 1997 and Wall Street's in 2008.
Indonesia's rupiah is down the most since that period, while the Philippine peso is down 8% versus the U.S. dollar. Asia has come a long way over the last two decades. Financial systems are stronger, governments more transparent. Currencies are more flexible. Foreign-exchange reserves have been amassed to offer insurance during times of trouble.
Two decades on, though, economies from Japan to Singapore are still too reliant on exports. Nations from Indonesia to India to the Philippines are still vulnerable to capital flight thanks to current account deficits. Leaders throughout the region still rely too much on stimulus, too little on structural retooling to address inequality.
The 2008 "Lehman shock," meantime, remains a live issue in world markets for similar reasons. Central banks slashed rates to zero and governments cut taxes and ramped up public spending. But steps to increase innovation, competitiveness and productivity were few and far between. Trump's trade war is rapidly bringing many of the vulnerabilities that savaged markets a decade ago back to the fore.
These tensions are bubbling up in Korea too, of course. Since May 2017, Moon's government made little headway on altering the structure of Korea's economy. He was elected to wean Korea off an excessive reliance on exports and a handful of conglomerates towering over Asia's fourth-biggest economy. Instead, he spent the bulk of his time on peace talks with North Korea.
Moon made a down payment on his "income-led growth" model with a 10.9% minimum wage hike effective next year. But the absence of the deregulatory big bang for which investors hoped explains why the Kospi index has walked in place over the last 12 months, essentially unchanged.
At a moment when Asia's other emerging economies are struggling, Korea is largely holding its own. A sign that, for all Seoul's challenges, it is doing something right.
There is a risk Seoul's collision course with Trump's Washington could slam exports and drive growth sharply lower. As Woodward's book points out, Trump has a particular obsession with allies that enjoy trade surpluses with America, fearing his base is getting ripped off.
"But we're losing so much money in trade with South Korea and others," Trump once complained to U.S. Defense Secretary Jim Mattis, in Woodward's telling. Mattis, reportedly, retorted that it is cheaper for Washington than losing an ally in avoiding World War III with the North.
For now, though, at least South Korea is not doing battle with speculators pouncing elsewhere in Asia. And there are lessons in that.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.